InFormal SeTTlemenTS

and FInance
IN DAR ES SALAAM, TANZANIA
Informal Settlements
and Finance
IN DAR ES SALAAM, TANZANIA

Nairobi, 2010

Sec1:i
The Human Settlements Financing Tools and Best Practices Series
Informal Settlements and Finance in Dar es Salaam, Tanzania

First published in Nairobi in 2010 by UN-HABITAT.

Copyright © United Nations Human Settlements Programme 2010

All rights reserved

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HS/1220/09E
ISBN: 978-92-1-132186-9 (Volume)
ISBN: 978-92-1-132027-5 (Series)

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Acknowledgements
Director: Oyebanji Oyeyinka
Principal Editor and Manager: Xing Quan Zhang
Principal Author: Shaaban A Sheuya
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FOREWORD

The global housing And for this, we need innovative governance,

crisis, especially in
the developing world,
is getting worse by
the day making the
right to adequate
shelter a quest that is
becoming more and
more difficult to meet,
despite the targets set
by the Millennium Development Goals.
Such is the rate of urbanization – the influx of
people into towns and cities, and their natural
growth – that the world has now reached a
point where for the first time now, half the
global population lives in towns and cities.
and local thinking and reporting if we are
to bring hope to the urban poor. Equally
importantly, we need to support our towns
and cities, indeed our countries, to adopt pro-
poor policies and strategies that will obviate
the need for further slum creation.
It is against this background, that the Human
Settlements Financing Tools and Best
Practices series focuses on the development
of know-how, knowledge and tools in human
settlements financing, from which Member
States can learn in delivering affordable
housing to the poor.

By the year 2050, six billion people – two-

thirds of humanity – will be living in towns
and cities. And as urban centres grow, the locus
of global poverty is moving into towns and
cities, especially into the burgeoning informal
settlements and slums, of the developing world.
In the developing world, this is happening so
fast that slums are mushrooming in what is
termed the urbanization of poverty.

This makes it imperative that we use every

means at our disposal to ensure that we at UN-
HABITAT, and our partners, keep applying Anna Tibaijuka,
ourselves to Target 11 of the Goals – to achieve Executive Director, UN-HABITAT
significant improvement in the lives of at least Under-Secretary-General of
100 million slum dwellers, by 2020. the United Nations

iii
ABBREVIATIONS AND ACRONYMS

CBOs Community Based Organisations

CDA Community Development Association
CIUP Community Infrastructure Upgrading Project
CRDB Cooperative and Rural Development Bank
DCC Dar es Salaam City Council
FINCA Foundation for International Assistance
HNCDA Hanna Nassif Community Development Association
LGA Local Government Authority
MFIs Micro-finance institutions
MKUKUTA Mkakati wa Kukuza Uchumi na Kupunguza Umasikini, Tanzania
MKURABITA Mkakati wa Kurasimisha Biashara na Mali za Wanyonge, Tanzania
MLHHSD Ministry of Lands, Housing and Human Settlements Development
NBC National Bank of Commerce
NBS National Bureau of Statistics
NGOs Non Governmental Organisations
NHSDP National Human Settlements Development Policy
NMB National Microfinance Bank
PMU Project Management Unit
PRIDE Promotion of Rural Initiatives and Development Enterprise
RC Regularization Committee
SACAs Savings and Credit Associations
SACCOs Savings Associations and Credit Cooperative Societies
SFF Special Forces Funds
TC Technical Committee
THB Tanzania Housing Bank
UN United Nations
UNDP United Nations Development Programme
UPC Urban Planning Committee
URT United Republic of Tanzania
WAT Women Advancement Trust
WFHDF Workers and Farmers Housing Development Fund

iv
Table of Contents

foreword iii
abbreviations and ACRONYMS iv
EXECUTIVE SUMMARY ix
table of contents v
LIST OF TABLES AND appendix vii
LIST OF FIGURES and boxes viii

CHAPTER ONE: URBANIZATION IN TANZANIA 1

Introduction 1
Existing land tenure systems in Tanzania 3
Characteristics of informal settlements 6
Regularisation of informal settlements in Tanzania: an overview 9

CHAPTER TWO: DAR-ES SALAAM, A RAPIDLY URBANISING INFORMAL CITY 11

Administration 11
Urbanization and population growth 11
Formation and growth of informal settlements 12
Dar es Salaam: built-up area and city structure 13

CHAPTER THREE: SETTLEMENT UPGRADING PROJECTS IN DAR ES SALAAM 15

Introduction 15
First and Second National Sites and Services and Squatter
Upgrading Projects 15
The Community Managed Upgrading project in
Hanna Nassif, Dar es Salaam 16
Hanna Nassif: Facilitating the issuance of land titles 17
Current approaches to urban housing development and management 19
Regularization projects in Dar es Salaam 19
20,000 Plots project in Dar es Salaam 20

v
CHAPTER FOUR: FORMAL HOUSING FINANCE IN TANZANIA 23
Background 23
Existing financial institutions 23
Micro-finance institutions 25
PRIDE and FINCA 25
SACCOs 26
Formal Financial Institutions 26
Microfinance for shelter: an overview 26
Microfinance for shelter in Dar es Salaam 27
WAT SACCOs 28
Shelter microfinance: Proposed pilot project 28
Project assumptions 29
Affordability 30
Potential role players 30
Perceptions of loans for house improvement in Manzese Settlement 30

CHAPTER FIVE: INFOMAL SHELTER MICROFINACE IN HANNA NASSIF 33
Introduction 33
Urban livelihoods 33
Housing transformation 33
Swahili house 34
Research Methodology 37
Results 38
Characteristics of house transformers 38
House construction and transformation process 38
Assets mobilized in the construction and transformation phases 40
Self financing mechanisms 41

CHAPTER SIX: CONCLUSION AND RECOMMENDATIONS 43

Financing of settlement upgrading 43
Financing of housing improvement 44
Recommendations 45
Concluding remarks 45

referenceS 49

vi
LIST OF TABLES and appendix

Tables
1.1 Population growth in Tanzania 1967-2002 1
1.2 Urban population in 2002 2
1.3 Economic growth from 1984 to 2007 2
1.4 Payments for the acquisition of Certificate of Right of Occupancy 5
1.5 Payments for the acquisition of Residential Licences 5
1.6 Distribution of households by construction materials 7
1.7 Major differences between formally planned and unplanned
(informal) settlements in Dar es Salaam 8
2.1 The distribution of wards and sub-wards of Dar es Salaam 11
2.2 Population growth in Dar es Salaam 1867-2002 12
2.3 Distribution of population in Dar es Salaam 2002 12
2.4 Population living in informal settlements in Dar es Salaam in 2002 13
3.1 Financing of the First and Second Urban Projects - million US $ - 16
3.2 Budget and expenditure for the Hanna Nassif Project 17
3.3 Project achievements 18
3.4 Projected revenues from Phase one of the Residential
Licenses project 20
3.5 Project budget in TShs 21
3.6 Costs-and-size of residential plots 22
3.7 The number of surveyed plots and already allocated (cumulative)
to different people as of 2007 in eleven project sites 22
4.1 Total assets of major banks/non bank institutions (in million TShs)
as of 31 December 2008 24
4.2 Major assumptions in the proposed Makangarawe pilot project 30
5.1 Households’ major assets 34

Appendix
1. List of registered commercial Banks (2008) 46
2. Financial, Regional Unit Financial Institutions and Regional Unit Banks 47
3. Regional distribution of Microfinance Institutions in Tanzania 48

vii
LIST OF FIGURES and boxes

Figures
1. Existing Tenure Systems in Tanzania 6
2. Land-use development pattern 13
3. Extent of growth of Dar es Salaam (2002) 14
4. Urban Swahili House 35
5. The semi-modern Swahili house 36
6. Hanna Nassif showing transformed houses along primary
and secondary roads in Hanna Nassif 37
7. House Construction and Transformation Phases in Hanna Nassif 39

boxes
1. Guidelines for preparing schemes of regularization 10
2. Mobilizing human, financial, social and natural assets 41
3. Tenants transforming houses 42

viii

executive summary
Availability of housing finance contributes to
housing development in the developed as well
as developing countries. This partly explains
why the government of Tanzania established
the Tanzania Housing Bank way back in
1972. From the time it collapsed in 1995, the
country has remained without a long term
housing finance institution. Although this is
the case, petty landlords in most of the urban
areas in Tanzania have continued to provide
housing to the majority of urban dwellers by
using informal housing finance mechanisms.
Little is known of the internal workings of
these mechanisms in Tanzania and in order
to get information on what is happening in
the country, UN-HABITAT requested the
Consultant to produce a report on informal
settlements and informal housing finance
mechanisms in Dar es Salaam. This report
provides the required information.
The report consists of six chapters. Chapter
one examines urbanization rates in Tanzania
and its impacts on housing provision. It
shows that high rates of urbanization, slow
economic growth rates, weak institutional
frameworks compounded by a favourable
land tenure system, resulted in making the
majority of the urban households provide
shelter for themselves in informal settlements.
The existing land tenure system also permits
individuals and groups to acquire rights to
occupy and use land on leasehold for short and
long periods of time. In addition, customary
and neo-customary land tenure systems co-
exist.
Furthermore, the chapter provides an overview
of regularisation, the current strategy used by
the government to strengthen land ownership
Executive Summary
in the informal settlements including the
conditions for an area to have a regularization
scheme and the guidelines for preparing the
same.
Chapter two examines the impacts of
urbanization in the specific context of Dar es
Salaam, the largest commercial and industrial
city in the country. Besides providing data
on the growth of the population of the city
from 1867, the chapter also looks at the
spatial growth of the city and the resulting city
structure.
Chapter three reviews the different
settlement upgrading projects carried out
by the government, Non-Governmental
Organisations (NGOs) and other stakeholders
that were aimed at improving the lives and
working conditions of the majority of people
living in informal settlements. The first projects
of the early 1970s focused on the provision of
basic infrastructure and community facilities.
These were jointly funded by the World
Bank and the Government of Tanzania.
While they greatly helped to ease housing
problems affecting low-income earners,
they were carried out in a period when local
government authorities were non-existent in
the country meaning that, households and
community members could not participate in
the implementation of the projects.
One of the projects which succeeded to
overcome the above mentioned problem is the
Community Managed Settlement Upgrading
project of the early 1990s. Besides the fact that
it took place when local governments were
already established, the project was innovative
in many other ways: direct participation and
ix
Informal Settlements and Finance
in Dar es Salaam, Tanzania
decision making by community members;
partnerships between the City council and a
local CBO; inter-agency collaboration among
UN agencies; use of labour based technology in
infrastructure provision in an urban informal
settlement as a tool for poverty reduction;
capacity building among stakeholders not
only in infrastructure provision but also
the management and maintenance of the
infrastructure as the main focus of the project,
etc.
When the project came to an end in 2000, a
well experienced local NGO, WAT Human
Settlement Trust, came to Hanna Nassif
to assist property owners to acquire title
deeds so that they can use these to obtain
loans for financing housing extensions and
improvements. It is important to mention here
that the aspect of secure tenure, which WAT
Human Trust worked on, was not included in
the design of the first upgrading projects of the
1970s as well as the improved versions of the
Community Managed Upgrading projects of
the 1990s.
The Chapter also describes how the concept
of regularisation was operationalized in Dar
es Salaam, including its success stories and
challenges. And since regularization is in many
ways considered to be a reactive and therefore
not a proactive strategy to human settlement
planning and development, the chapter
provides information on the success story of
the 20,000 Plot project in terms of the supply
of surveyed and serviced land and cost recovery
mechanisms. The author is of the opinion
that the success of the 20,000 Plot project is
probably one of the reasons which triggered the
government to embark on the Regularization
project. Unfortunately, cost recovery in the
later project is still problematic.
Chapter four is devoted to formal housing
finance in Tanzania. Although the country
has a number of registered local and foreign
commercial banks and a few non-bank
financial institutions, by the nature of their
x
business, the majority do not provide shelter
finance loans. The only exception is the
Azania Bankcorp Ltd. Experience from other
countries on the other hand shows that some
micro-finance institutions provide loans for
housing to micro entrepreneurs who work in
the informal sector. In Tanzania, this is only
starting to emerge. Most of the microfinance
institutions still continue to offer loans
for enterprise development. Due to their
potentials in shelter microfinance, the chapter
provides some information on a few of these
microfinance institutions.
In addition, the chapter contains a detailed
account of WAT SACCOs, one of the most
promising shelter microfinance institutions
in urban informal settlements in Tanzania.
Furthermore, a detailed project proposal on
shelter microfinance formulated by Cities
Alliance and Africa Union of Housing Finance
in one of the informal settlements in Temeke
Municipality, Makangarawe, is described.
The chapter ends by narrating some mixed
perceptions of property owners on the whole
issue of residential licenses/title deed vs. taking
loans for shelter microfinance.
Chapter five looks specifically at informal
shelter microfinance. The information in the
chapter is drawn from a PhD dissertation
carried by the author in one of the informal
settlements of Dar es Salaam, Hanna Nassif.
The findings on informal shelter microfinance
in the settlement show that the houses are built
incrementally in two broad phases: start-up
and transformation phase. In the start-up phase
most property owners mobilize a combination
of their human, financial and social assets. In
the transformation phase, physical, financial
and natural assets become the major mode of
shelter microfinance. The study further shows
that in the late stages of the transformation
phase, the housing (house and plot) develops
its own internal mechanisms whereby the
owner households do not need to marshal
resources from other household assets when
the need to transform the house arises because

there were micro-entrepreneurs who were
ready to invest in the transformation process.
At this particular point, house transformation
becomes a self-financing process.
Self-financing mechanisms seem to take place
in consolidated settlements located close to
the city centre and where demand for rental
residential and commercial accommodation is
high. And although self financing mechanisms
provide new lenses for exploring new
directions in informal shelter microfinance,
the complexities they bring in terms of land
tenure and tenure security should not be
overlooked.
Chapter six provides the conclusions and
recommendations. The recommendations
focus on two aspects (1) financing of settlement
upgrading projects and (2) financing of
shelter improvement. Regarding the former,
it is recommended that projects that aim at
improving the living and working conditions
in unplanned settlements and those aimed at
providing new surveyed and serviced plots
should be seen as two sides of the same coin.
The success story of the 20,000 plots in terms
of cost recovery seem to suggest that a careful
and comprehensive design of settlement
upgrading which views the whole city as one
entity is likely to offer possibilities of cross-
subsidization between unplanned settlements
and new surveyed and serviced sites.
Executive Summary
It is also recommended that regularization
projects which offer short term residential
titles and those which aim at providing long
term title deeds form part of the continuum
of tenure security measures. They permit
flexibility in tenure holding and should be
allowed to co-exist.
At the housing level, experience from other
developing counties shows that, besides offering
loans for micro enterprise development,
microfinance institutions are starting to enter
into the shelter microfinance sub-market.
Microfinance institutions in Tanzania are
encouraged to study the existing situations in
urban areas and to explore ways to offer the
shelter microfinance product.
Experience from Hanna Nassif seem to suggest
that loans from formal shelter microfinance
institutions combined with informal shelter
microfinance mechanisms that are based
on household assets have an important
triggering effect in housing improvement.
Thus, combining formal and informal
shelter microfinance mechanisms should
be encouraged and promoted. And arising
from the above, the government, private
sector, NGOs and other key stakeholders
are encouraged to explore alternative ways of
enhancing household assets.
xi

CHAPTER 1
Urbanisation in Tanzania
Introduction
The United Republic of Tanzania (URT)
is located in East Africa between longitude
29 and 41 degrees East and latitude 1 and
12 degrees South. Tanzania has the biggest
land among the three East African countries.
Since independence in 1961, the country has
successfully managed to hold presidential and
parliamentary elections after every five years.
From 1985, Tanzania has followed a two term
limit for the presidency.
The country is made up of the Mainland
(formerly known as Tanganyika) and the two
islands of Unguja and Pemba jointly known
as Zanzibar. In terms of land area the country
covers 883,749 square km of which 881,289
Table1.1: Population growth in Tanzania 1967-2002
Tanzania 1967 1978
Mainland 11,958,654
Zanzibar 354,815
Total 12,313,469
Source: www.tanzania.go.tz/census/census/tables.htm accessed on 18th Nov.2008.
Urbanisation in Tanzania
are in the Mainland and 2,460 in the islands.
Administratively, Tanzania mainland is divided
into 21 regions and Zanzibar 5 regions.
Based on census data only1, URT in 1967
had a population of 12.31 million. By 2002,
the population had almost tripled to 34.57
million (Table 1.1). In 2002 the Mainland
had a population of 33,584,607 while that of
Zanzibar had reached 984,625.
Based on 2002 census data, the urban
population was 7.94 million or 23.0 per cent
of the total population. In the Mainland, 7.55
million people corresponding to about 22.5
per cent lived in urban areas while in Zanzibar
there were 388,723 urbanites or 39.5 per cent
of the total population (Table 1.2).
1988 2002
17,036,499 22,455,193 33,584,607
476,111 640,685 984,625
17,512,610 23,095,878 34,569,232
1 The discussion is based on actual data (as against projections)
obtained from the four census carried out in the country since
1967. The next census is planned to take place in 2012.
1
Informal Settlements and Finance
in Dar es Salaam, Tanzania

Table 1.2: Urban population in 2002

Tanzania Total population Urban population % urban 2002

Mainland 33,584,607 7,554, 838 22.5 33,584,607

Zanzibar 984,625 388,723 39.5 984,625

Total 34,569,232 7,943,561 23.0 34,569,232

Source: www.tanzania.go.tz/census/census/tables.htm accessed on 18th Nov.2008.

In the Mainland the urban population had
increased from 13.8 per cent in 1978 to 18.8
per cent in 1988 (1978 and 1988 Population
Census). As mentioned earlier, the percentage
of the urban population in 2002 was 22.5. Thus,
the percentage change in the urban population
for the 1978 to 2002 period is 9.3. The major
causes of rapid urban population growth in the
whole of Tanzania are high natural births and
rural-urban migration. Projections show that
URT will have a population of 56,903,000 by
2030 of which 33,144,000 or 58.2 per cent
will be urban (UN-HABITAT, 2005).
In Tanzania, the increase in population on
the one hand, and the rapid growth of urban
population on the other, has not been driven
by rapid economic growth rates as the case
was in the developed countries during the
Industrial Revolution in Europe in the 19th
Century. Studies show that the economy of
Tanzania grew by 1.3 per cent in 1984; 1.6
per cent in 1986; and 4.1 per cent in 1988
(Maliyamkono, 1990; quoted in Kombe,
1995:14). From 1999, however, the economy
has been growing steadily: by 4.7 per cent
in 1999; 5.6 per cent in 2001 and 2003; and
6.7 per cent in 2004 and 2006. In 2007, the
economy grew by 7.1 per cent (Tanzania
Budget Speeches from 2000/2001 to 2008-
2009) (Table 1.3).

Table 1.3: Economic growth from 1984 to 2007

Year Per cent growth

1984 1.3

1986 1.6

1988 4.1

1999 4.7

2001 5.6

2003 5.6

2004 6.7

2006 6.7

2007 7.1

Source: Maliyamkono, 1990; Budget Speeches from 2000/1 to 2008/9

2

The high urbanization rates, in the context
of slow economic growth rates from the early
1980s compounded by weak institutional
frameworks in terms of local government
sources of revenue, quality of trained
personnel, equipment and working tools, etc.;
bureaucracy and lack of transparency in land
allocation; un- realistic building standards and
regulations in formally planned and surveyed
land, have, among other things, contributed
to the proliferation and densification of
unplanned or informal settlements2 in most of
the major urban areas in Tanzania.
By 1967 already 36 per cent of the urban
population were living in informal settlements
(Stren, 1990). In 1972, this had risen to 44
per cent. Studies conducted in 1995 under the
Urban and Housing Indicators Programme
show that at the national level, 70 per cent of
the population live in informal settlements. For
instance, in Mwanza, the second largest city,
40 per cent of its population live in informal
settlements while in Dar es Salaam, Arusha
and Mbeya, 70 per cent of the population live
in these settlements (URT, 2000).
Studies have also shown that social pressure on
individuals and households press them to build
and own houses preferably on individual plots
(URT, 2007). The desire by everyone to own a
house has exerted pressure on the demand for
land for housing in urban areas. It is estimated
that annually, about 80,000 urban households
are in need of housing and about 61,000 are
expected to be tenants (URT, 2007).
The desire to own a house has resulted in having
about 98 per cent of the houses in formally
planned as well as informal settlements in cities
such as Dar es Salaam to be built and owned
by private individuals (Kombe and Kreibich,
2000; URT, 2007). Viewed differently, the
pressure for every household to own a private
house is a blessing in that many houses have
been built and people occupy them; rent them;
2 In this paper, the two terms of “unplanned “and “informal
settlements” are used interchangeably.
Urbanisation in Tanzania
or live with their tenants in the same houses.
Few, if any, Tanzanians live in the streets.
Despite the pressure for home ownership, the
proportion of house owners is declining while
that of tenants increasing. At the national level,
the proportion of house owners declined from
85.4 per cent to 84.3 per cent in the 1991/2
to 2000/1 period. Except Dar es Salaam where
the owner households increased from 31.2
per cent to 32.4 per cent in the same period,
the total of all other urban areas recorded a
decline from 55.8 per cent to 54.2 per cent
(Household Budget Survey, 2000/1).
The majority of people who build houses in
informal settlements in Tanzania access land
through informal mechanisms and the most
prevalent way is through the purchase of land
from local landowners. Other approaches
include allocation by local leaders, inheritance
and occupation without permit.
Existing Land Tenure Systems in
Tanzania
During the colonial period, the Germans in the
1889 declared “all land in Tanzania3 whether
occupied or not as crown land vested under the
German Emperor” (Lerise, 1996; citing James,
1971). The declaration was enacted into a law
in 1923 by the British and became the Land
Ordinance which, with minor modifications
and revisions, has guided land administration
till today.
Arising from the above, all land in Tanzania is
public land vested in the President as trustee
for and on behalf of all citizens. In other
words, the concept of private ownership of
land does not exist and that individuals and/
or groups can have rights to occupy and use
land on leaseholds for short terms of 2 years
or long terms of 33, 66 or 99 years. All citizens
who wish to occupy and use land in Tanzania
can apply for the same from the different
3 At that time the country was known as Tanganyika.
3
Informal Settlements and Finance
in Dar es Salaam, Tanzania
municipalities and for special projects, from
the Ministry of Lands, Housing and Human
Settlement Development. In addition,
customary and quasi-customary land tenure
systems co-exist in most rural and urban
areas.
Legally, there are two main types of land
tenure systems in the country: statutory and
customary. Statutory tenure rights can further
be subdivided into three categories, namely
granted right of occupancy; occupancy under
Letter of Offer; and derivative right. Under
customary tenure we have quasi-customary
and informal tenure (Figure 1).
In order to better understand the nature
of tenure security in informal housing
development in Tanzania, the different tenure
systems are briefly explained in the following
section.
Granted right of occupancy. The governments
grants its citizens renewable rights of
occupancy on land that has been surveyed
of up to 99 years at a premium and revisable
annual land rent. To be valid, the right has
to be registered under the Land Registration
Ordinance Chapter 334.
Occupancy under Letter of Offer. Once a citizen
is issued with and accepted a letter of offer,
he/she can register the duly signed and sealed
letter of offer under Registration of documents
Ordinance Chapter 117 and becomes a valid
document that creates notice of ownership.
Derivative right. Under the Land Act (1999)
the government offers a “residential licence”,
which is a right derivative of a granted right of
occupancy. According to the Act, a residential
licence is a right conferred upon the licensee
to occupy land in non-hazardous land, land
reserved for public utilities and surveyed land
for a term not less than six months and not
more than two years. The term can, however, be
renewed for the same period. Like occupancy
under letter of offer, the residential residence
is issued under Registration of documents
Ordinance Chapter 117.
4
Customary. Is acquired by virtue of being
a member of a community and is based
on traditional acceptance. The system has
no formal documents and no land transfer
takes place without the blessings of the clan/
community members.
Quasi-customary tenure. As the name suggests,
the influence of the clan/community in land
transfer is, among other things, diminished.
While local leaders and adjoining landowners
are consulted when the need to transfer land
arises, the right to sell lies mainly with the
individual right holder. Customary and quasi-
customary forms of tenure are commonly
found in peri-urban unplanned areas of the
city of Dar es Salaam ( Kombe, 1995; Kironde,
2005).
Informal tenure. Here, land transfer is not
guided by customary or quasi-customary
norms and rules. It can take place between
any land seeker and the person who owns
the land and the system has devised its own
informal ways of protecting the buyer and
authenticating ownership (Kombe, 1995).
The premiums, survey fees and the land rent
fees under the Granted right of occupancy
and Occupancy under Letter of Offer, differ
from one place to another within the same city
or municipality depending on a number of
factors including location (for example, prime
areas are priced highly; size of the plot; use
to which the land is put; availability of basic
infrastructure and services; etc).
To illustrate these differences, we use amounts
paid by three individuals who acquired
medium density plots of different sizes from
the 20,000 Plots Project (See Chapter Three)
in three different sites in the municipalities of
Temeke and Kinondoni (Table 1.4).
With regard to residential licences and as
exemplified by the Residential Licenses Project
in Manzese (See Chapter Three), title holders
have to pay an application fee for the licence
amounting to TShs 1,000; a preparation fee
 Urbanisation in Tanzania

Table 1.4: Payments for the acquisition of Certificate of Right of

Occupancy

Location Plot Premium Certificate Registration Survey Deed Stamp Annual Total
size of fee fees plan duty land
(m2) Occupancy fees rent
fee

Vijibweni
1,030 1,931,520 3,000 1,030 36,050 6,000 347.50 5,150 1,983,097.50
(Temeke)

Bunju 8
718 1,228,688.40 3,000 861 26,450 6,000 1,000 4,300 1,270,299.40
(Kinondoni)

Bunju 13
657 1,344,551.40 3,000 1,182.60 29,266 6,000 1,000 5,900 1,390,900
(Kinondoni)

Source: Interviews with three different plot-holders in the 20,000 Plot Project

of the document of TShs 3,000; registration things, depends on the size and use of the plot
fee of TShs 1000; stamp duty of TShs 600 (Midheme, 2007) (Table1.5)
and an annual land rent which, among other

Table 1.5: Payments for the acquisition of Residential Licences

Year Per cent growth

Application 1,000

Preparation 3,000

Registration 1,000

Stamp duty 600

Annual land rent Variable. (In one case it was TShs 2,516).

Source: Midheme, 2007

5
Informal Settlements and Finance
in Dar es Salaam, Tanzania
Figure 1: Existing Tenure Systems in Tanzania
Existing tenure sytems
Statutory
Granted right of Occupancy under
Derivative right
occupancy Letter of Offer
Source: Shaaban Sheya 2009
Characteristics of Informal
Settlements
According to UN-HABITAT (2003), slums are
operationally defined by inadequate access to
safe water; inadequate access to sanitation and
other infrastructure; overcrowding; insecure
residential status; and poor structural quality
of housing. While the first three characteristics
are also found in informal settlements in
Tanzania, the Tanzania situation is different in
at least three aspects: tenure security; structural
quality of housing; and the nature of people
who live in these settlements.
Tenure security. Based on the existing tenure
systems, people who build in informal
settlements in Tanzania know that they have
some ‘perceived’ security of tenure because of
at least three reasons. The first is historical: the
Government has, since the early 1970s4, been
sympathetic and tolerant to the development of
these settlements. For example, with financial
and technical assistance from the World Bank,
several informal settlements in Dar es Salaam
and other major upcountry towns were
upgraded after the government had endorsed
squatter improvement schemes in 1972 (for
more details go to Chapter three).
4 The Government’s approach to informal settlements in
the early 1960s was characterized by hostilities: they were
demolished.
6
Customary
Customary Quasi-customary Informal
Secondly, one of the fundamental principles
of the National Land Policy (1995) is to “pay
full, fair and prompt compensation to any
person whose right of occupancy or recognized
long-standing occupation or customary use of
land is revoked or otherwise interfered with to
their detriment by the State under this Act5
or the Land Acquisition Act” (URT, 1999:
37). Some of the factors that have to be taken
into consideration when assessing the value
of compensation include: market value of the
real property; disturbance allowance; transport
allowance; loss of profits or accommodation;
the cost of acquiring or getting the subject land;
capital expenditure incurred in the development
of the land; and interest at market rate.
Other equally important and supporting
principles of the National Land Policy (1995)
are:
• “To ensure that existing rights in and
recognised long standing occupation or
use of land are clarified and secured by the
law’; and
• “To take into account that an interest in
land has value and that value is taken into
consideration in any transaction affecting
that interest” (1999: 36-37).
The National Land Act, 1999.IS this a quote?
5 The National Land Act (1999).
 Urbanisation in Tanzania

Thirdly, in 2000, the government adopted a
progressive human settlements development
policy which, among other things, states
that slum upgrading shall be done “by their
inhabitants through CBOs and NGOs with
the government playing a facilitating role”
(URT, 2000:26).
Structural quality of housing. The perceived
security of tenure is likely to have led owner
households in informal settlements to build
houses with permanent and modern building
materials. These include cement and tiles for
floors; baked/burnt bricks, concrete/cement/
stone for walls; and metal sheets, roof tiles and
concrete for roofs. Both the Household Budget
Survey of 2000/1 and 2007 show that since
1991/92, the use of modern building materials
has increased in both rural and urban areas.
The increase has been highest in urban areas
and particularly, Dar es Salaam (Table 1.6).

Table 1.6: Distribution of households by construction materials

Dar es Salaam Other urban Rural areas Mainland

areas Tanzania

91/92 00/01 2007 91/92 00/01 2007 91/92 00/01 91/92 00/01

House floor
Earth 14.5 6.7 8.7 44.6 38.3 37.1 90.8 86.6 79.2 74.0
Cement, tiles etc. 84.3 92.4 90.4 54.2 61.1 61.9 8.0 12.5 19.6 25.2
Others 1.2 0.9 1.0 1.2 0.5 0.9 1.2 0.9 1.2 0.8
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

House walls
Poles, branches, grass 3.4 0.9 1.5 5.7 5.3 4.6 23.7 19.3 19.8 16.0
Mud & poles/stones 15.1 5.2 4.7 16.3 13.1 10.9 27.7 21.8 25.3 19.4
Mud only 2.0 2.2 1.9 11.1 12.1 10.3 14.6 18.1 13.3 16.1
Mud bricks 12.0 3.2 1.3 37.6 30.8 22.6 24.2 23.5 25.4 23.3
Baked/burnt bricks 4.8 1.3 1.6 11.9 15.9 29.9 8.1 13.7 8.5 13.2
Concrete, cement, 62.1 87.2 88.3 17.1 22.4 20.7 1.5 3.0 7.6 11.5
stone
Other 0.7 0.0 0.5 0.2 0.4 1.0 0.1 0.6 0.2 0.5
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

House roof
Grass, leaves, bamboo 1.1 1.1 2.1 21.7 14.3 12.3 63.1 55.7 53.1 45.8
Mud & grass 0.2 0.7 0.4 1.7 1.5 2.6 12.8 12.5 10.4 10.1
Concrete, cement 3.4 3.6 1.2 0.7 0.5 0.0 0.1 0.0 0.4 0.3
Galvanized metal 91.5 91.7 94.4 74.2 81.9 84.1 23.8 31.3 35.4 42.8
sheets
Asbestos sheets 0.1 0.5 0.3 0.0 0.3 0.3 0.1 0.0 0.1 0.1
Tiles 3.8 2.4 1.2 0.5 1.0 0.2 0.0 0.1 0.3 0.4
Others 0.0 0.0 0.3 1.3 0.5 0.5 0.1 0.5 0.3 0.5
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: NBS, 2002; Household Budget Survey, 2007

7
Informal Settlements and Finance
in Dar es Salaam, Tanzania
Nature of people who live in informal settlements.
With the exception of informal settlements
located in hazardous lands, one unique feature
which characterises informal settlements in
Tanzania is the fact that a wide range of social
economic groups live side by side: It is quite
common in Tanzania to find the rich and
the poor living together in the same informal
settlement. This is probably due to the fact
that access to land for housing in the informal
market is relatively easy and efficient when
compared to the formal land delivery system.
Another contributing factor could be the
favourable land policy and security of tenure
which, as described above, encourages people
to build using permanent building materials.
Besides, the use to which the land is put in
the informal market is, to a large extent and
within certain limits, not controlled by the
Table 1.7: Major differences between formally planned and unplanned
(informal) settlements in Dar es Salaam
S/N Formally planned
1 Plot boundaries clearly demarcated and
surveyed (cadastral survey)
2 Relatively easy to obtain Granted right of
occupancy and Occupancy under Letter
of Offer
3 Roads clearly demarcated and to design
standards
4 Spaces for community facilities provided
for in the plan
5 Basic sanitation and portable water varies
from one settlement to the other and
when provided it is generally inadequate
to meet demand
6 Development control enforceable.
Source: Shaaban Sheya
8
local authorities. In this way therefore, social
and physical alienation of informal settlers
from the rest of the city population is quasi-
nonexistent in the country.
Based on the author’s lived experience, a
sizeable number of foreign housing experts
visiting informal settlements in Dar es Salaam
for the first or second time, find it difficult
to distinguish, in uncertain terms, the major
differences between a formally planned
and an informal or unplanned settlement.
One contributing factor is the extensive use
of permanent building materials in both
settlements as described earlier. Besides the
differences discussed above, formally planned
and informal settlements exhibit major
differences as shown in Table 1.7.
Unplanned (informal)
Plot boundaries not physically demarcated but known
to plot holders and adjoining neighbours and defined
by hedges, trees or other artefacts
Residential licence can be obtained once the area is
regularized
Road reserves obtained through “social regulation”
Their availability largely depends on “social
regulation”
Varies from one settlement to another.
Cumbersome and not legally easy to enforce.

Regularisation of Informal
Settlements in Tanzania: an
Overview
The major strategy for improving the life
and living conditions in informal settlements
in Tanzania today is regularisation which is
spelt out in the Land Act of 1999. According
to the Act, the main purpose of a scheme of
regularisation is to facilitate the recording,
adjudication, classification and registration of
the occupation and use of land by those living
and working in an area. For an area to have a
regularisation scheme:
• the land it occupies has to be substantially
built-up;
• the area is substantially used for
habitation;
• a substantial number of the people living
in the area appear to have no lawful title to
their use and occupation of land;
• the land is occupied under customary land
law;
• a substantial number of people have lived
in the settlement for a considerable period
of time;
• despite the lack of any security of tenure, a
substantial number of people appear to be
investing in their houses;
• people living in the area and their
CBOs wish to participate in a scheme of
regularisation; and
• the area is likely to be declared a planning
area under the Town and Country Planning
Ordinance (URT, 1999).
Urbanisation in Tanzania
The Act also clearly spells out the conditions
for implementing a regularization scheme:
“For avoidance of doubt, no scheme of
regularization under this section shall be
implemented until-
(a) occupation and use of land by those
persons living and working in the area declared
by sections 56 to 60 have been recorded,
adjudicated, classified and registered;
(b) the President has acquired existing rights
and interests in terms of section 45 of the
Town and Country Planning Ordinance; and
(c) fair compensation is paid promptly for
the rights and interests to be acquired by the
President” (URT, 1999; 196-197).
The Ministry of Lands, Housing and Human
Settlements Development on its part has
produced Guidelines for the preparation
of detailed schemes for regularization
(MLHHSD, 2007). The preparation process
focuses on the steps to be followed, the
different actors and their roles (Box 1).
It is important to note that in terms of tenure
security, the Guidelines from the Ministry go
further than the issuance of residential licenses.
It requires the Regularization Committee to
mobilize resources for cadastral surveying of
the properties; submission of the survey plan
for approval; and facilitating the issuance of
certificates of title deeds. These steps lead to
the acquisition of a granted right of occupancy
and not a residential license.
9
Informal Settlements and Finance
in Dar es Salaam, Tanzania

Box 1: Guidelines for preparing schemes of regularization

The preparation process of schemes of regularisation shall be as follows:

• The Local Government Authority (LGA) shall justify the need for a detailed planning scheme
of regularisation and declare the area to be an area for Regularisation.
• The LGA shall pass a resolution of intention to prepare a planning scheme of regularization.
• The LGA shall publish a notice in a Government Gazette and news paper circulating in the
local area, and/or put notices in local government offices (Mtaa, Ward etc).
• The Technical Committee (TC) shall convene a meeting of all stakeholders in the area to be
affected by the scheme to give them opportunity to participate in the preparation of the
scheme, landholders be encouraged to present their own proposals/schemes.
• Following a positive resolution from the above meeting The LGA shall endorse the idea and
establish a Regularization Committee (RC) comprising representative stakeholders to seek
their views and development proposals in the planning area.
• The RC shall prepare an inventory of property ownership, existing services, land suitability,
land use and land tenure, infrastructure such as road network, electricity, water supply etc.
• The LGA shall determine and agree on Regularisation standards in consultation with the
Ministry, Utility Agencies and others.
• The TC shall prepare a conceptual/ general land use plan showing different land use zones
including infrastructure way leaves/community services.
• The TC shall present the conceptual /general land use plan to the community and secure their
approval.
• The TC shall negotiate with land owners to acquire land for infrastructure way leaves and
community facilities and agree on and demarcate property boundaries.
• The TC shall assess compensation bills/schedules for settling third party interests and identify
area for resettlement of displaces.
• The TC shall prepare a scheme of Regularisation and have it ratified by Urban Planning
Committee (UPC).
• The LGA shall submit it to the Minister for approval.
• The RC shall mobilize resources for cadastral surveying and infrastructure provision.
• The LGA shall submit the survey plan to the Director of Surveys and Mapping for Approval.
• The TC shall facilitate issuance of certificate of title deeds.
• The LGA shall mobilize resources for provision of infrastructures and services

10

CHAPTER 2
Dar es Salaam: A Rapidly Urbanising Informal
City
Administration
Administratively, Dar es Salaam City Council
is composed of the three municipalities
of Kinondoni, Ilala and Temeke. The
municipalities are subdivided into 73 wards
which are in turn further subdivided into 276
sub-wards or “mitaa” in Kiswahili (Table 2.1).
The municipalities provide economic and
social services in their areas of jurisdiction;
undertake measures to improve commerce
and industries and maintain quality of the
Table 2.1: The distribution of wards and sub-wards of Dar es Salaam
Municipality Wards
Ilala
Temeke
Kinondoni
Total
Source: DCC Profile, 2004
Urbanization and Population
Growth
Dar es Salaam, the largest and leading economic
city in Tanzania, grew from a small sea port
and trading centre of 900 people in 1867 to
a city of 2.49 million in 2002. In the 1957-
1967 period, the population had more than
doubled. This can be explained by the removal
Dar es Salaam:
A Rapidly Urbanising Informal City
environment and health of its residents. In this
regard, they are responsible for the provision
of health facilities, solid waste management,
maintenance of the road network in their
areas, etc. The Dar es Salaam City Council
on the other hand, performs a co-ordinating
role on cross-cutting issues traversing the three
municipalities such as health services, fire and
rescue, transportation, and city-wide projects.
All the four civic authorities are headed by
mayors and directors as political and executive
officers, respectively.
Sub-wards
22 65
24 97
27 114
73 276
(after independence in 1961) of the order
which restricted the movement of Africans to
towns that was put in force during the colonial
period. In 1978, the city had a population of
843,090. Ten years later, the population had
almost doubled to 1, 360,850 (Table 2.2).
High natural growth rates coupled by rural-
urban migration are the two forces that have
contributed to the rapid population growth.
11
Informal Settlements and Finance
in Dar es Salaam, Tanzania

Table 2.2: Population growth in Dar es Salaam 1867-2002

Year Population

1867 900
1874 10,000
1913 34,000
1943 45,000
1952 99,140
1957 128,742
1967 272,515
1978 843,090
1988 1,360,850
2002 2,497,940

Source: DCC, 1992 and NBS, 2003.

The whole of Dar es Salaam region is urban. municipality had the largest share of the city’s
With a population of 2,497,940 in 2002 Dar population followed by Temeke (Table 2.3).
es Salaam accommodated 33.7 per cent of The average household size is 4.2.
the Mainland urban population. Kinondoni

Table 2.3: Distribution of population in Dar es Salaam 2002

Municipality Males Females Total Average household size

Kinondoni 549,929 538,938 1,089,867 4.2

Temeke 389,245 382,255 771,500 4.1
Ilala 321,903 315,670 637,573 4.3
Total 1,261,245 1,236,863 2,497,940 4.2

Source: Population and Housing Census, 2002

Formation and Growth of there were 7000 units in unplanned areas. By

Informal Settlements
The government’s failure to cope with the rapid
urban population growth in terms of provision
of serviced land for housing has resulted in the
mushrooming of informal settlements, among
other things. In 1960, for example, the number
of “squatter” houses in the city was estimated
to be 5000 units (Kombe and Kreibich,
2000). Through the interpretation of aerial
photographs in 1963, the Town Planning
Division of the then Ministry of Lands,
Housing and Urban Development found that
1972, the number of units in such settlements
had more than tripled to about 28,000.
In 1978 it was estimated that 60 percent of the
city population lived in informal settlements
(Kyessi, 1990; Kironde, 1994). In 2002,
1,696,500 or about 68 per cent of the total
population in Dar es Salaam lived in informal
settlements. Temeke municipality had 78 per
cent per cent of its residents living in informal
settlements the, highest among the three
municipalities (Table 2.4).

12
 Dar es Salaam:
A Rapidly Urbanising Informal City

Table 2.4: Population living in informal settlements in Dar es Salaam

in 2002
Municipality Total area Informal Total Population in % of total
(ha) area (ha) population informal population in
areas informal area
Kinondoni 53,100 2,560 1,089,000 768,000 70

Temeke 771,500 2,000 771,500 600,000 78

Ilala 21,000 1,095 637,500 328,500 52

Total 845,600 5,655 2,498,000 1,696,500 68

Source: CIUP, 2004

Kironde (2004), however, is of the opinion
that saying that about 70 per cent of the
population living in Dar lives in informal
settlements could be an underestimate. He
argues that data collected for property tax
purposes indicate that there are 350,000
Figure 2: land-use development
pattern
properties in Dar es Salaam, of which 60,000
are in planned areas and the rest, 290,000 or
83 per cent are in informal areas.
According to the President’s Office,
Ministry of Local Government and Regional
Administration (2003), the number of
informal settlements of all sizes in Dar es
Salaam has increased from 40 in 1985 to
over 150 in 2003 (URT, 2003; as cited in
Kombe, 2005). Of the 150 settlements, 54
were considered large in terms of the size of
population.

Dar es Salaam: Built-up Area and

City Structure
In Dar es Salaam city, informal urbanisation
which is the force shaping urban growth has
resulted in unplanned sprawl with expansive
city structure.

Reports show that the city’s built up area6 was

Source: Land-use data supplied by ITC, Enschede; data
digitised by IRPUD based on aerial imagery
122 ha. in 1891 (Lupala, 2002). The built-up
area of the city more than tripled in 1945 to
463 ha. A dramatic rise in the built-up area of
the city took place between 1945 and 1963,
when the built up area reached 3,081 ha.
When the city population rose from 272,515
in 1967 to 843,090 in 1978, the built-up
area increased to 11, 331 ha. It was estimated
that the city had a built-up area of 61,260
6 The built up area of Dar es Salaam is defined as those areas
with consolidated housing that depict the character of
urbanized settlements.

13
Informal Settlements and Finance
in Dar es Salaam, Tanzania
ha. in 1999 of which 40, 315 ha. (65.80 per
cent) were occupied by informal settlements
(Kombe, 2005).
Dar es Salaam city has a radial structure. In
1945, the consolidated parts of the city were
confined within a radius of two kilometres. In
1963 the radius had increased to six kilometres;
by 1978 it was 14 kilometres; and by 1991 it
was 18 kilometres. By 2002, the radius had
extended 32 kilometres northwards along
Bagamoyo Road, 28 Kilometres eastwards
along Morogoro Road, 20 kilometres along
Pugu Road and 14 Kilometres southwards
along Kilwa Road (Figure 3).
The growth is following the available trunk
infrastructure services especially roads, water
supply and electricity. From the level of
settlement consolidation, three distinct zones
can be identified:
• The inner core zone: These are informal
settlements characterised by congested
Figure 3: Extent of growth of Dar es Salaam (2002)
14
housing with densities of up to 40 houses
per ha. The high densities coupled with
the chaotic nature of settlement structure
leads to prohibitive costs of infrastructure
services provision. In this zone, there are
also several settlements which have been
developed on hazardous lands that are
susceptible to floods.
• The intermediate zone: This refers to
informal settlements which are fast
consolidating without guidance from
planning authorities.
• The peri-urban zone: This is the target
area for the majority of the urban poor
who cannot afford to buy land in the
intermediate and inner core city areas.
It is also the target area for the middle-
income households that buy relatively
larger plots for multiple uses including
urban farming. In addition, most of the
peri-urban areas are haphazardly growing
with little or no consideration to future
functional structure of the settlements or
environmental protection measures.
Source: Lupala, 2008

Chapter 3
Settlement Upgrading Projects in Dar es
Salaam
Introduction
A number of informal settlements have been
upgraded in Dar es Salaam in different periods.
The most interesting upgrading initiatives in
the context of this report include Manzese and
Mtoni/Tandika in the First and Second National
Sites and Services and Squatter Upgrading
Projects of the 1970s and early 1980s and the
Community Managed Settlement Upgrading
of Hanna Nassif in the early 1990s and 2000.
Drawing on the experiences gained from the
earlier-mentioned upgrading projects and the
1999 Land Act, current approaches to urban
housing development and management focus
on regularization of settlements in Dar es
Salaam (including Manzese) and provision
of new surveyed and serviced plots in what
is commonly referred to as the 20,000 Plot
Project. These initiatives are briefly described
in the following section.
First and Second National Sites
and Services and Squatter
Upgrading Projects
As the name implies, the projects involved
upgrading of selected informal settlements
and the provision of newly serviced plots
of land. The projects were executed in two
phases: the first from 1974 to 1977 and the
second from 1977 to 1984. The two phases
Settlement Upgrading Projects
in Dar es Salaam
were jointly funded by the World Bank and
the Government of Tanzania.
In Dar es Salaam, the first phase project involved
the upgrading of the informal settlements
of Manzese A and B . Manzese A and B7 are
located in Manzese ward in the Kinondoni
municipality. They are situated some seven
kilometres from the City centre. Morogoro
road bisects the settlements into A and B parts.
In 2002, the Manzese ward had a population
of 67,000. The average household size was 4
(NBS). To the North, the ward is bordered
by river Sinza, to the South by Mabibo and
Mburahati roads. A valley formed by river
Luhanga forms the Eastern boundary while
the Ubungo Flats form the western boundary.
Through upgrading, the settlements were
provided with basic infrastructure (roads, storm
water drainage; water supply, street lighting,
etc.), and community facilities (schools,
health centres, dispensaries and markets). The
sites and services component of the project
on the other hand involved the provision of
newly surveyed and serviced plots in Sinza,
Mikocheni and Kijitonyama. The type and
standards of infrastructure and services that
were provided in the newly serviced plots as
well as the upgraded sites were similar.
7 In Mbeya, Mwanjelwa informal settlement was upgraded
while surveyed and serviced plots were provided in Mwanza.
15
Informal Settlements and Finance
in Dar es Salaam, Tanzania
The estimated project cost for the first phase
urban project was USD 14.5 million of which
USD 8.51 million or 58.70 per cent was
World Bank’s contribution, and the rest by the
Government of Tanzania (Table 3.1)
Table 3.1: Financing of the First and Second Urban Projects - million US $ -
Project Government
Amount % of Total
First Urban Project
5.99
(1974 – 1977)
Second Urban Project
17.30
(1977 – 1984)
Source: Sadashiva (1981); World Bank (undated) Financial Management of the National Sites and Services and
Squatter Upgrading Project in Tanzania, Unpublished report.
and Tandika8. The two sites are located in
Temeke Municipality and they boarder one
another. To the North the settlements are
bordered by a planned residential and light
industry area, to the South and East by the
Mzinga Valley, to the West by the Veterinary
area. Altogether, the two settlements cover
about 471 ha.
Besides upgrading of informal settlements
in the regional towns and Dar es Salaam,
the second phase project also provided new
surveyed and serviced sites to accommodate
the displaced and to cater for additional
people who are looking for surveyed plots.
Besides the provision of infrastructure and
community services in these settlements, loans
for house improvement and the construction
of new housing units were made available. In
addition, sites for small-scale industries were
built in Tanga and Tabora. The estimated
project cost was USD 29.3 million of which,
USD 12.00 million was contributed by the
World Bank.
Overall, these pioneer projects had a positive
impact on housing improvement and
8 Hanna Nassif was also earmarked for upgrading in this phase
but due to cost overruns, the settlement was not upgraded.
16
In the second phase, the upgrading component
of the project covered informal settlements in
four regional towns (Tanga, Morogoro, Iringa
and Tabora) and Dar es Salaam. In Dar es
Salaam, upgrading was carried out in Mtoni
World Bank Total
Amount % of Total
41.30 8.51 58.70 14.50
60.00 12.00 40.00 23.90
provision. However, the projects were faced
with, among other things, problems of cost
recovery; poor administration and recovery
of housing loans; over-dependency on donor
funding and technical assistance; and top-
down planning principles (NHSDP, 2000).
It is important to mention that top-down
planning principles had to be used because
at that time in the history of Tanzania, local
governments were non-existent: they had been
dissolved and were only re-introduced in 1982.
Thus, the absence of local governments meant
that residents did not have the opportunity to
participate in the projects.
The Community-managed
Upgrading Project in Hanna
Nassif, Dar es Salaam
Hanna Nassif is located some four kilometres
from the city centre. To the North the settlement
is bordered by a planned residential area and
to the West by an inner ring road, the Kawawa
road. The Msimbazi valley forms the Southern
and Eastern boundaries. Administratively,
Hanna Nassif and Mkunguni form the Hanna
Nassif Ward. In 2002, the ward (Hanna Nassif
and Mkunguni) had a population of 32,023

with an average household size of 3.9 (URT,
2003). The settlement grew from what used to
be a coconut plantation owned by one Hanna
Nassif.
The Community Managed Upgrading project
in Hanna Nassif was also carried in two
phases: 1994-1996, and 1997-2000. Unlike
the upgrading projects mentioned earlier,
Table 3.2: Budget and expenditure for the Hanna Nassif Project
Item Budget (TShs)
Project personnel and
381,495,741
capacity building
Construction work 307,284,838
Others 55,039,000
Total 743,819,579
Source: I.T. Transport Ltd.
The immediate objectives of the project were:
• To increase the capacity of the Hanna
Nassif Community in the implementation
and management of urban infrastructure
and micro-enterprise development;
• To expand the capacity of the Dar es
Salaam City Council, private sector and
other actors to deal in an enabling manner
with community-based urban settlement
upgrading; and
• To generate employment through
the construction, management and
maintenance of storm water drainage,
roads and water supply (UCLAS, 1997).
UNDP and Ford Foundation provided a
total of TShs 743,819,5799 for the technical
assistance as well as the construction of the basic
infrastructure. The budget and expenditure for
the project is shown in Table 3.2.
The project was innovative in many aspects:
partnerships between the city council and a
local CBO; direct participation and decision
9 1 USD was equal to TShs 800
Settlement Upgrading Projects
in Dar es Salaam
the Community Managed Upgrading Project
in Hanna Nassif was a participatory joint
initiative between a local CBO, the Hanna
Nassif Community Development Association
(HNCDA) on the one hand, and the City
Council, UN Agencies (ILO, UN-HABITAT,
and UN Volunteers), Ardhi University, and
Ford Foundation, on the other.
Expenditure (TShs) Balance (TShs)
334,716,677 46,779,064
174,064,455 133,220,383
38,429,837 16,609,163
547,210,969 196,608,610
making by community members, inter-
agency collaboration among UN agencies; use
of labour based technology in infrastructure
provision in an urban informal settlement as
a tool for poverty reduction; capacity building
among stakeholders not only in infrastructure
provision but also the management and
maintenance of the infrastructure as the main
focus of the project, etc. The success story of
the project has been extensively documented
and its “replication” tried in many projects,
including the Community Infrastructure
Upgrading Project which was funded by the
World Bank.
The achievements and weaknesses of the
project, as seen by an independent evaluation,
are shown in Table 3.3.
Hanna Nassif: Facilitating the
Issuance of Land Titles
When second phase of the Community
Managed Upgrading project in Hanna Nassif
came to an end in 2000, Women Advancement
Trust, a non for profit NGO established in
17
Informal Settlements and Finance
in Dar es Salaam, Tanzania
1989, started to offer its technical advisory
services in Hanna Nassif. The Mission of
Women Advancement Trust, is to promote
access to adequate and affordable shelter
with secure tenure to low and middle income
earners, particularly women. This is achieved
through community mobilisation and
sensitisation; awareness creation; empowering
individuals, housing groups and cooperatives;
and capacity building through the provision
of technical support and advocacy.
In its organisation structure, Women
Advancement Trust has an Administration
and Finance Unit and two technical units:
one dealing with housing development and
the other with communication, lobbying and
advocacy. The Housing Development Unit is,
Table 3.3: Project achievements
Development objective
To contribute to the improvement of the living
conditions and access to urban services and expanding
employment opportunities for the residents in
unplanned settlements
Immediate Objectives
The capacity of Hanna Nassif community is increased in
• Implementation and management of urban
infrastructure
• Micro-enterprise development and solid
waste management initiatives
The capacity of the Dar-es ¬Salaam City Council
(DCC), private sector and other relevant actors to deal
in an enabling manner with community-based urban
settlement upgrading expanded.
Community-based employment intensive construction
of storm water drainage, roads, water supply, and
low cost sanitation systems successfully completed,
managed and maintained.
Source: I.T. Transport Ltd.
18
in turn, composed of four sections, namely
WAT SACCOs, Housing cooperatives and
groups, Women groups and Paralegal.
In Hanna Nassif, WAT wanted to facilitate
(1) the acquisition of land titles which was
not included as a project component in the
Community Managed Upgrading Project phases
and related to this (2) mobilize house owners to
access shelter microfinance services under the
WAT SACCOs. To achieve the first activity10
the NGO commissioned Ardhi University to
prepare a layout design for the settlement which
was later endorsed by the Kinondoni Municipal
Council. The layout plan formed the basis for
the cadastral survey that was carried out by
Geomatic Intergrated Property Consultancy
and Services Ltd, a private surveying firm.
Progress
Achieved. Living conditions have been improved
through an improved environment, with less
flooding, decreased levels of diseases, greater access
to social and economic services and increased
Achieved.The capacity of CDA has been physically
and financially increased to undertake the specified
activities. The capacity of the wider ‘community’ has
not been greatly increased, but they are aware of
the CDA and what assistance they can provide
Partially achieved
On a higher policy, strategy and management level
within the government capacity has been increased.
However, within current implementing staff it has
not.
Limited capacity has been built in the private sector.
Partially achieved
The majority of the physical infrastructure planned for
has been constructed using labour based methods
and is functional. There is no maintenance schedule
for common infrastructure such as roads and drains.
However, there are some income generating and
unplanned emergency maintenance activities.
10 The activities of the NGO on shelter microfinance are reported
in Chapter four.

When the survey was completed, 1425
plots were obtained and the survey plan was
approved by the Ministry of Lands, Housing
and Human Settlements Development. From
the approved survey plan the Ministry had, by
April 2008, prepared 200 letters of offer and
title deeds are expected to be issued soon.
In undertaking the initiative, WAT-
Human Settlements Trust contributed TShs
6.1million for sensitization and awareness
creation among the community members
as well as the preparation of the layout
plan. The National Programme for Business
and Property Formalization -Mkakati wa
Kurasimisha Biashara na Mali za Wanyonge,
Tanzania- popularly known as MKURABITA
in abbreviated Kiswahili, paid TShs 30 million
for the cadastral survey (Senje, 2008). To
recover the costs of cadastral survey, each title
holder is required to pay TShs 30,000.
It can be seen from the above intervention
that unlike the initial informal settlements
upgrading projects of the 1970s which
mainly focussed on basic infrastructure and
service provision, WAT Human Settlements
Trust has managed to add value to upgrading
by promoting tenure security in terms of
facilitating the issuance of land titles. It will be
seen in Chapter four that WAT’s intervention
went beyond facilitating the issuance of
residential licences: it actually offered shelter
microfinance services.
Current Approaches to Urban
Housing Development and
Management
As mentioned in the introduction, the
current approaches to improving the lives
and working conditions of people living in
informal settlements as well as urban housing
development in general, in the city of Dar
es Salaam, have focussed on regularization
and provision of newly surveyed and (partly)
serviced sites.
Settlement Upgrading Projects
in Dar es Salaam
Regularization Projects in Dar es Salaam
Based on the Land Act 1999, the Ministry
of Lands, Housing and Human Settlements
Development in close collaboration with
the Dar es Salaam City Council and the
three Municipalities of Kinondoni, Ilala and
Temeke, on the one hand, and communities
and individual households in the different
settlements on the other, implemented
the Comprehensive Urban Land Property
Register for Economic Empowerment of
Residents in Unplanned Settlements in Dar es
Salaam Project, also popularly known as the
Residential Licenses Project.
Project objectives
The Residential Licenses project had an overall
goal of creating a Comprehensive Land and
Property Register showing the status of every
individual plot of land within the unplanned
settlements of Dar es Salaam. The specific
objectives were to:
• Identify ownership of individual properties
in the unplanned settlement and prepare
property registers;
• Give legal status to land owners in the
existing unplanned settlements by issuing
Residential Licenses, hence increasing the
economic value of land and buildings for
use as collateral;
• Increase Government revenue through the
collection of land rent from the unplanned
settlements;
• Create a comprehensive database for
efficient land administration; and
• Build capacity within the Ministry to
undertake such projects in other urban
centres (MLHSD, 2006).
The first step in the project implementation was
to identify the major unplanned settlements in
the city. This was followed by public awareness
campaigns in the selected settlements to solicit
the participation of different stakeholders.
19
Informal Settlements and Finance
in Dar es Salaam, Tanzania

Other steps included the preparation of base
maps; identification of properties; preparation
and verification of property registers; and
issuance of residential licences.
The project for the whole of Dar es Salaam
with an estimated 420,000 properties (houses
including their plots and other developments
on the plots) was planned to take place in two
phases, from 2004 to 2006. The first phase
was completed in 2005 and approximately
220,000 properties were identified. During
the planning phase of the project it was hoped
that payment of the residential licenses would
generate enough money to make the project
self-sustaining. In other words, money collected
from the 220,000 plots would be ploughed
back to fund the remaining 200,000 properties.
Table 3.4 shows the amount of revenue that
would have been collected from the first phase
project if all identified property owners would
have taken up their residential licenses.
The project was, however, faced with two
problems. First, 57,076 owners (25.9 per
cent) out of the 220,000 identified properties,
could not be identified (MLHHD, 2006).
Second, the issuance of residential licenses
was inaugurated in 2005 in Manzese ward,
Kinondoni District and by April 2007, about
61,000 residential licenses had been issued
(URT, 2007).
To acquire a residential licence, the landholder
has to pay about TShs 6,000 to cover the costs
for the application, preparation, registration,
stamp duty and annual land rent. The fact that
61,000 ( 27.7per cent) residential licenses
out of 220,000 had been issued as of April
2007, seem to suggest that if no other sources
of funds (other than cost recovery from the
first phase) are sought, it will take time for
the second phase to kick off. The government’s
target is to regularize all unplanned settlements
by 2020.

Table 3.4: Projected revenues from Phase one of the Residential

Licenses project
Municipality No. of Land rent Residential Stamp duty
properties (TShs) licence (TShs)
preparation
fees (TShs)

Ilala 52,888 142,797,600 264,440,000 31,732,800

Kinondoni 62,489 168,720,300 312,445,000 37,493,400

Temeke 102,030 275,481,000 510,150,000 61,218,000

Total 220,000 586,998,900 1,087,035,000 130,761,600

Source: MLHSD, 2006

20,000 Plots Project in Dar es Salaam
In a country where the majority of the urban
population live in informal settlements,
settlement regularization is one of the most
welcome strategies to improve the living and
working conditions of the majority of people
who already live in these settlements. In terms
of urban planning, however, regularization
is only a reactive strategy: it is insufficient
to contain future development of human
settlements. A more pragmatic and proactive
strategy is to simultaneously combine
regularization with the cadastral survey and
servicing of sufficient new plots.
Within the context of the Land Act (1999), the
government of Tanzania issued a loan of TShs
8.9 billion to the Ministry of Lands, Housing
and Human Settlements Development to
carry out the 20,000 Plots survey project in
Dar es Salaam. The project fits well with the

20

government’s commitment to reduce poverty
as spelt out in the National Strategy for
Growth and Reduction of Poverty-Mkakati
wa Kukuza Uchumi na Kupunguza Umasikini
(MKUKUTA). Besides poverty reduction, the
project was aimed at addressing the growing
number of informal settlements in the city
by the timely delivery of plots. In addition,
the project was meant to implement the
anti-corruption strategy in the land sector by
making available a large number of surveyed
and serviced plots of different densities.
To implement the project, the Ministry of
Lands, Housing and Human Settlements
Development in collaboration with the
Dar es Salaam City Council and the three
municipalities of Kinondoni, Ilala and Temeke,
identified 12 suitable sites: Bunju, Mbweni,
Mbweni JKT, Mivumoni, Mpiji, Boko Dovya
in Kinondoni; Buyuni and Mwangati in Ilala;
Table 3.5: Project budget in TShs
S/N Activity
1 Selection and acquisition of project sites
2 Design of plot layouts
3 Valuation
4 Compensation
5 Surveying
6 Plot allocation
7 Road construction
8 Project Management
Total
Source: PMU, 2002.
Right from the beginning, it was anticipated
that the loan from the government would be
recovered from the sale of the surveyed and
serviced plots. Depending on the location and
size, the cost for low density plots varied from
TShs 2.2 million to 3.6 million and those
of high density from TShs 700,000 to TShs
1,100,000 (Table 3.6)
Settlement Upgrading Projects
in Dar es Salaam
and Tuangoma, Kisota, Mtoni Kijichi and
Vijibweni in Temeke.
As mentioned earlier, the budget estimate for
the project was TShs 8.9 billion, of which, a
lion’s share of about TShs, 5.6 billion (62.9 per
cent) would go to compensation for the existing
properties in the selected sites (Table 3.5). As
mentioned in Chapter one, some of the factors
that have to be taken into consideration when
assessing the value for compensation include:
market value of the real property; disturbance
allowance; transport allowance; loss of profits
or accommodation; the cost of acquiring or
getting the subject land; capital expenditure
incurred in the development of the land; and
interest at market rate.
The second largest cost component was road
construction, at about TShs 1.9 billion (21.3
per cent).
Allocation (TShs)
16,780,000
15,567,000
251,385,250
5,572,800,000
898,696,000
187,328,000
1,877,700,000
125,234,000
8,945,490,250
Studies carried by the Ministry of Lands,
Housing and Human Settlements Development
in 2007 show that cumulatively, 30,655 plots
as against 20,000 were surveyed and partly
serviced, surpassing the target by 10,655. In
addition, by the same time, 28,294 (92.3
per cent) plots had already been allocated to
those who were in need and who have applied
21
Informal Settlements and Finance
in Dar es Salaam, Tanzania

Table 3.6: Costs-and-size of residential plots

Density Size (m2) Cost (TShs)

High Density 400-600 700,000 - 1,100,000

Medium Density 601-1,200 1,110,000-2,200,000

Low Density 1.201- 4,000 2,210,000-3,600,000

Source: PMU, 2002.

for them (Table 3.7). It was only in one site,
Buyuni, in Ilala, where 2,320 plots out of the
7,570 surveyed plots had not been allocated.
This might have been caused by the relatively
long distance of the site from the city centre
and the lack of reliable public transport.
Due to the success story of the Survey Plot
project in Dar es Salaam in terms of (1)
provision of great numbers of newly surveyed
plots; (2) the management and financing
mechanisms (wholly local without external
support); and (3) cost recovery mechanisms,
the project is being replicated in other
major towns in Tanzania including Mwanza,
Morogoro and Mbeya.
Observing the success story of the 20,000
Survey Project in Dar es Salaam which started
in 2002, and the regularization project of 2004,
one can speculate that the success story in cost
recovery of the former, might have led the
government to implement the regularization
project. But as noted earlier, the slow pace of
taking up the residential licences is likely to
contribute to the delay in the take off of the
second phase of the regularization project.

Table 3.7: The number of surveyed plots and already allocated

(cumulative) to different people as of 2007 in eleven project sites

Project site Residential/ Allocated Not Allocated Remarks

Service plots
Toangoma 3,384 3,377 7 Institutional plots
Kisota 1,778 1,773 5 Service plots
Mtoni Kijichi 1,776 1,776 0
Vijibweni 31 30 1 Un-buildable area
Mwanagati 2,164 2,147 17 Located on hazard land
(TAZAMA pipe line)
Buyuni 7,570 5,250 2,320 Less buyers due to
remoteness of the area
Bunju 4,868 4,857 11 Institutional/service plots
Mivumoni 1,508 1,508 0
Malindi 3,486 3,486 0
Mbweni JKT 1,336 1,336 0
Dungu Farm 2,754 2754 0
Total 30,655 28,294 2,361

Source: MLHHSD, 2007

22

Chapter 4
Housing Microfinance in Tanzania
Background
At the time of writing this report, Tanzania does
not have a bank which is specializing in housing
finance. The only formal housing finance bank
that existed in the country in the early 1970s
was the Tanzania Housing Bank (THB),
which was established in 1972 and became
operational the following year. It operated
for 22 years and was closed in 1995 due to
its weak capital base; high default rates ( with
a 22 per cent loan recovery rate); dependence
on short-term borrowing to finance long term
lending; poor record keeping; poor collateral;
and mal-administration and corruption (URT,
2007).
During its existence, the Bank was issuing
subsidized as well as unsubsidized mortgages.
The former were issued from the Special
Forces Funds (SFF) and the Workers and
Farmers Housing Development Fund
(WFHDF). As the name implies, SFF
was established to enable employees of the
Tanzania Peoples Defence Force, Police Force,
and the Prisons Department to access loans
to purchase building materials. The Workers
and Farmers Housing Development Fund on
the other hand was meant for both rural and
urban farmers and workers. The unsubsidized
mortgages were issued from the Bank’s
own funds (Main Fund) and were operated
Housing Microfinance in Tanzania
commercially. Between 1973 and 1990, the
Bank had financed 40,327 housing units
(UN-HABITAT and URT, 2003).
Existing Financial Institutions
Besides the Bank ofTanzania which is responsible
for the formulation and implementation of
the country’s monetary policy; management
of foreign reserves; issuance of currency and
regulation/supervision of banks, Tanzania
has a number of registered local and foreign
commercial banks and non-bank financial
institutions11.
Commercial banks
As of 2008, the local commercial bank with
the highest branch network was the National
Microfinance Bank (NMB) with a branch
network of 108. It is followed by the National
Bank of Commerce (NBC) which has a branch
network of 40. In terms of foreign registered
banks Standard Chartered Bank leads with
seven branch network followed by Stanbic
(Appendix 1).
Non-bank financial institutions
The non-bank financial institutions fall into
three categories: financial institutions12;
11 These are institutions that mobilize deposits and carry out
other banking activities except checking accounts.
12 A financial is an institution licensed by Bank of Tanzania and
23
Informal Settlements and Finance
in Dar es Salaam, Tanzania

regional unit financial institutions13 and
regional unit banks14. The list of non-bank
financial institutions existing in 2008 is shown
in Appendix 2. Table 4.1 shows the total assets
of major15 local banks and non-bank financial
institutions as of 31 December, 2008.
Due to stringent loan conditions and arising
from the nature of housing finance, except the
Azania Bancorp Ltd, most of the remaining
commercial banks hardly provide loans for
housing construction (see next section on
micro-finance). In order to be eligible for

Table 4.1: Total assets of major banks/non bank institutions (in

million TShs) as of 31 December 2008
Name Total assets ( in million TShs)

National Microfinance Bank (T) Ltd 1,384,268

National Bank of Commerce (T) Ltd 1,073,479

CRDB Bank (T) Ltd 1,449,673

Standard Chartered Bank (T) Ltd 817,969

Stanbic Bank (T) Ltd 476,943

FBME Bank (T) Ltd 205,101,013

BOA Bank (T) Ltd 122,265

The Peoples Bank of Zanzibar (T) Ltd 102,588

Akiba Commercial Bank (T) Ltd 59,065

Diamond Trust Bank (T) Ltd 157,036

Exim Bank (T) Ltd 459,301

Kenya Commercial Bank(T) Ltd 107,759

International Commercial Bank (T) Ltd 42,848

Barclays Bank (T) Ltd 553,047

Savings and Finance Commercial Bank Ltd 57,227

Citibank (T) Ltd 359,546

Azania Bancorp Ltd 76,660

Mbinga Community Bank Ltd 2,233

Source: The Guardian Newspapers of February 10th, 12th, 13th, and 14th, 2009.

authorized to engage in banking business not involving the a housing loan an individual must, among
recipient of money on current account subject to withdrawal
by cheque.
other things, have formal and permanent
13 A regional unit financial institution is an institution licensed employment which can guarantee regular flow
by Bank of Tanzania to operate as a regional unit financial
institution and authorized to engage in banking business
of income; the land he owns must comply
not involving receipt of money on current account subject to
withdrawal by cheque.
with legal land requirements (tenured security)
14 A regional unit bank is an institution authorized to operate and the house to be built must satisfy local
as a regional unit bank. The institution may receive money on
current account subject to withdrawal by cheque.
planning and building regulations, etc.
15 Banks with more than one office branch network in the
country.

24

As mentioned in Chapter one and two, the
majority of urban dwellers in Dar es Salaam
live in informal settlements and that their land
tenure status does not meet the tenure security
criteria set by commercial banks. Besides, 94.1
per cent16, of the total employment is Tanzania
is in the informal sector (Integrated Labour
Force Survey, 2006) and therefore does not
qualify for loans from commercial banks.
Microfinance Institutions
Micro-finance institutions (MFIs) offer loans
and other financial services for micro and
small enterprise development and their loan
conditions are not as stringent as those given by
the commercial banks. In this regard, they are
better placed to serve informal sector operators.
And like in many developing countries, the
micro-finance industry in Tanzania is still
young. In addition, most MFIs are credit and/
or savings based.
The existing micro-finance services in Tanzania
are offered by the following institutions:
• Non Governmental Organisations Micro-
finance institutions;
• Savings Associations and Credit
Cooperative Societies (SACCOs);
• Formal financial institutions that offer
micro-credit services; and
• Government and Public sector sponsored
micro-finance programmes.
In 2005, the Bank of Tanzania carried a
countrywide survey to update is directory of
micro-finance institutions. The directory shows
that there were 68 NGOs, 1620 SACCOs, 48
Savings and Credit Associations (SACAs), 45
Community Based Organisations (CBOs),
eight banks, two companies and 95 government
programmes (Kironde, 2007). The regional
distribution of Microfinance institutions in
Tanzania is shown in Appendix 3.
16 The percentage goes down to 77.1 if agriculture is not
included
Housing Microfinance in Tanzania
Taking into consideration the nature of this
study, we provide a brief description of two
of the NGO Micro-finance institutions
(PRIDE and FINCA); SACCOs and formal
financial institutions. To start with, we look
at the Promotion of Rural Initiatives and
Development Enterprise (PRIDE) and the
Foundation for International Assistance
(FINCA). The two institutions belong to the
first category of institutions that offer micro-
credit services.
PRIDE and FINCA
PRIDE was registered in 1993 and operates
in urban and peri-urban areas. It is structured
along the Grameen Bank model and provides
services to individuals who already own small
and medium enterprises. In 2006, PRIDE
had a country network of 26 branches with
63,000 clients (Kessy and Urio, 2006; cited in
Kironde, 2007). The minimum loan amount
was TShs 50,000 and the maximum loan was
revised upwards from TShs 600,000 in 1996
to TShs 5,000,000 in 2003.
PRIDE has a mechanism whereby a person
who qualifies for a minimum amount loan in
the beginning can, with time, and good track
record, qualify for bigger loans.
Individuals who access loans from PRIDE have
to form groups of five members. In addition,
each member has to make a weekly “forced
savings’’ of TShs 1,500 as part of its loan
insurance scheme. The amount is refunded
when the client leaves the scheme.
PRIDE’s operational self-sufficiency- the
degree to which the operating income covers
operating expenses- has been improving over
the years. Starting with a poor operational
self-sufficiency of 29.6 per cent in 1996, it
improved to 53 per cent in 1997 and in 2001
it stood at 100 per cent (Kironde, 2007).
The Foundation for International Community
Assistance (FINCA) on the other hand,
operates in rural and urban areas and attempts
25
Informal Settlements and Finance
in Dar es Salaam, Tanzania
to reach the poorest of the poor women. Loans
are made available to women who already have
on-going business activities. Borrowers are
required to have a savings in a group account
with a formal financial institution. Minimum
group size is 30 members. The minimum loan
amount in 2002 was TShs 100,000 and the
maximum was TShs 2,500,000. By that time,
FINCA had 37,000 clients.
SACCOs
The Cooperative Societies Act of 1991 defines
a savings and credit society (SACCO) as a
registered co-operative society whose main
function is to promote savings among its
members and to create a source of credit to
its members at a fair and reasonable interest
rate. The Banks and Financial Institutions
Act of 1991 on its part, recognizes SACCOs
as financial institutions.
Generally, SACCOs are employer-based and
their main source of capital is shareholdings
and member deposits. The use to which a
loan is put is determined by the shareholder
and can include housing. Loan size depends
on the member’s shareholdings which also
provide the collateral for the loan. Individuals
as well as groups can ask for loans. Direct
deduction from the employee’s salary makes
loan repayment easier.
A study carried out by the Vice-Presidents
Office in 2000 has shown that SACCOs are
financially more sustainable than the NGO
microfinance institutions. And the government
has put deliberate efforts to promote the
formation of SACCOs. These have grown
from 803 entities in 2000 to 1264 in 2003
(Kironde, 2007).
Formal Financial Institutions
Most of the major commercial banks described
earlier, including NMB and CRDB17 have,
17 For CRDB lending to micro-enterprise development is a
secondary rather than a primary activity.
26
due to great demand, opened a separate
window for micro-finance services. The small
local banks such as Akiba Commercial Bank
(ACB), Dar es Salaam Community Bank,
etc, also provide loans for microenterprise
development. Azania Bancorp Ltd. began
mortgage lending in 2002 in Dar es Salaam
(Merrill, et al., 2005) and the Dar es Salaam
Community Bank plans to offer shelter micro-
finance services in the near future.
In his analysis of the operations of micro-
finance institutions in Tanzania, Kironde
(2007) makes some of the following
observations:
• Credit is mostly given to those with
ongoing businesses and hardly to those
starting up business;
• Th
e existing micro-finance institutions
meet only 5 per cent of the demand;
• D
ue to higher risks and higher costs of
administering small loans, most NGO
micro-finance institutions charge higher
interest rates than those charged by formal
financial institutions; and
• G
overnment delivered micro finance has
generally performed poorly in terms of
financial sustainability.
Microfinance for Shelter: an
Overview
Microfinance for shelter is a relatively new
product of housing finance. It has emerged
from programme experiences of micro-
finance for enterprise development and
housing support programmes. To this end,
Daphnis and Ferguson (2004) provide
a definition of microfinance for housing
from two perspectives: product-centred
and provider-centred. From the product-
centred perspective, housing microfinance
encompasses financial services that allow poor
and low income households to finance their
housing needs with methodologies adapted
from microfinance for microenterprise

development. The methodologies are based on
some of the following principles:
• Relatively small loan amounts that are
determined by the capacity to repay;
• R
elatively short repayment periods when
compared to mortgage finance;
• Th
e loan pricing aims at covering both
operational and financial costs;
• Loans are not heavily collateralised;
• L
oans tend to finance incremental housing
development; and
• I f the lender is a microfinance institution,
shelter microfinance can be linked to prior
participation in savings or other micro
enterprise loan services. This form of
providing microfinance services is known
as ‘linked programmes’ and is mostly
managed by groups of individuals. The
other form which does not rely on prior
loan history with the provider is known
as “stand-alone” programmes. Here,
loans are extended to individuals (rather
than groups) based on the merits of their
financial profile and shelter needs (Daphnis
and Ferguson, 2004).
From the provider-centred definition, shelter
microfinance includes all explicitly recognized
housing-focussed financial services that MFIs
offer even when the conditions offered deviate
from microfinance orthodoxy.
Merrill (2006) on the other hand, simply
defines microfinance for shelter as ‘a subset of
microfinance, designed to meet the housing
needs of the poor and very poor, especially
those without access to the banking sector,
including to formal mortgage loans’.
As can be drawn from the above definitions,
microfinance for shelter programmes are born
from the living and working experiences of
the target groups. For instance, small repeated
loans for housing extensions and alterations
(housing transformation/improvement) and
incremental house construction are issued
instead of loans for buying or building a
Housing Microfinance in Tanzania
complete house in a planned residential area.
Shelter microfinance loans differ from
conventional commercial mortgage lending
in that (1) they have a variety of innovative
collateral arrangements for its loans and (2)
the loans are small and of short term duration.
Compared to loans for microenterprise
development, however, the loans for shelter
microfinance are relatively larger and of longer
duration (one to five years).
Experience shows that shelter microfinance
is offered by a range of agencies including
Microfinance Institutions, banks, and Non-
bank financial institutions, cooperatives,
credit unions and NGOs. The strategies used
for shelter microfinance are almost the same
as those used for microenterprise lending:
individual loans usually supported by group
guarantees as well as other forms of guarantee
provision. In addition, most providers of
shelter microfinance have a requirement for
mandatory savings over a specified period of
time; mandatory membership in a savings
group; previous success with microenterprise
loans; etc. Furthermore, most providers
of shelter microfinance provide technical
assistance e.g. construction techniques, loan
repayments, etc. to the loan beneficiaries.
Microfinance for Shelter in Dar
es Salaam
Currently, there are not many urban NGOs
dealing with shelter microfinance in the
country. The one which has considerable
experience in the field is WAT Human
Settlements Trust whose activities related to
tenure security were described in Chapter three.
In the following section, we briefly describe
WAT Human Settlements Trust activities
in shelter microfinance. We also provide a
brief summary of a proposal for a shelter
microfinance pilot project in Makangarawe
informal settlement, Dar es Salaam. Finally,
we provide some preliminary reaction from
a very small sample of house owners (and
27
Informal Settlements and Finance
in Dar es Salaam, Tanzania
therefore not a representative sample) of their
perceptions on shelter microfinance in the
regularised settlement of Manzese.
WAT SACCOs
The NGO started to mobilise groups to
form SACCOs in 1996 with the objective of
facilitating low and middle income groups to
access small loans. In 1998, WAT SACCOs
was established and with financial assistance
from Rooftops Canada, a Shelter Loan
Revolving Fund was established. The Fund is
strictly used for lending to housing groups/
individuals that are linked to WAT shelter
projects where members are encouraged to
build incrementally or in phases. Group
lending is usually for 1 to 2 years while
individual loans are for 1 to 5 years.
WAT Human Settlements Trust offers three
housing loan products to its members (1)
housing upgrading/improvement (2) housing
construction and (3) plot/land acquisition. For
the upgrading/improvement product, group
collateral is required and the repayment period
is 6 to 12 months; for housing construction
one needs to have two guarantors, title deed
and 25 per cent down payment. Repayment
period is 4 to 5 years. And for plot acquisition
one has to belong to a solidarity group.
From the foregoing, in order to qualify for a
loan, a borrower must, among other things,
be a member of a housing cooperative; be a
member of a solidarity group of 5 or 6 people;
demonstrate the ability to save for a period of 3
to six months; save 25 per cent of the amount
they want to borrow; be trained on lending
policy, loans vs. savings, loans management, etc.
According to Germain (2008), WAT Human
Settlements Trust has so far offered a total of
60 housing loans, 18 of which were for plot
acquisition, 20 for new housing construction
particularly in areas served by the 20, 000
Plot Project and 22 for housing improvement
the majority of which were in Hanna Nassif.
28
A detailed study of 5 borrowers from the
settlement that was carried out by author
shows, among other things, that:
• The house owners owned Swahili house
types ( for details see Chapter five);
• Th
e loans were used for room extensions
and alterations;
• Th
e loans were relatively small and were
issued repeatedly (more than three times).
For example, the average loan obtained by
each one of the five people was about TShs
2,000,000 and the first disbursement was
usually TShs 200,000; followed by TShs
400,0000 and so on.;
• Th
e total loan amount was not adequate
to complete the renovations -they varied
from 24 per cent to 61 per cent of the
required amount. This means that owner
households had to top up the amount
from other sources.
• T
enants lived in the houses and monthly
room rentals were adequate to repay the
loan; and
• All borrowers admitted that the loan
was an important catalyst for the house
improvement.
Shelter Microfinance: Proposed Pilot
Project
Within the Cities Alliance under the Cities
Without Slums initiative and in collaboration
with the Africa Union of Housing Finance,
Martin (2008), developed a pilot proposal
on shelter microfinance to support shelter
upgrading activities in four different countries,
namely Ghana, South Africa, Swaziland and
Tanzania. The proposal in Tanzania covers
Makangarawe, an informal settlement in the
Temeke Municipality. The proposal is said to
be financially sound for commercial banks and
other financial institutions on the one hand,
and favourable to the individual households
in the settlement, on the other. In many
ways, the pilot proposal tries to minimize

the risks that banking institutions are likely
to encounter but at the same time meets the
requirements and preferences of the individual
households. The risk mitigation measures
and the individual household preferences are
briefly discussed in the next section.
Risk Mitigation Measures
To contain the bank’s risks particularly in
terms of security and collateral, the pilot
project proposes the creation of:
• three separate accounts (community-based
guarantee; individual savings account; loan
loss provision account);
• m
andatory life and property insurance;
and
• p
rovision of a clause in all contracts that
allows taking movable property and later
on, immovable property as security, when
shortfalls occur (Martin, (2008).
The above measures are detailed below:
The community-based guarantee account. It
uses peer pressure as a credit enhancement
mechanism whereby a refundable 5 per cent
levy will be placed on all monthly instalments
and credited to an interest bearing savings
account, preferably held in the name a local
SACCOs.
The individual savings account. Each
individual member will be required to save
the equivalent of six months instalments of
the estimated loan before she/he qualifies for
the loan. This is meant to build up a savings
history and hence create protection for the
bank.
Loan loss provision account. This is a non-
interest bearing fund the size of which will
be calculated on the anticipated probability
of irrecoverable annual defaults. Based on
the experience of microfinance for enterprise
development, the amount is pegged at 3 per
cent.
Housing Microfinance in Tanzania
Mandatory life and property insurance.
The insurance is meant to protect both the
individual and the financier, due to, among
other things, the prevalence of malaria and
HIV/AIDS. This will be a compulsory
insurance on a group basis that will be built
into the instalments.
The taking of movable and later immovable
property. In many ways, this is an additional
security measure to take care of shortfalls,
should these occur.
Household preferences and requirements
• Access to reasonably priced funding;
• Adopt incremental building processes;
• O
pportunity to earn additional income
through sub-letting;
• Repayments to be matched to income;
• T
o be treated with dignity and respect by
the financial institutions.
• Other suggestions /requirements include:
• Individual as against group loans;
• S implified terms and conditions and user-
friendly documentation;
• I nterest should be based on reducing
balance;
• P
rovision of technical assistance to facilitate
access to land, acquisition of building
plans and permits; ways to make payments
easily; and
• Incentives to good payers (Martin, 2008).
Project Assumptions
The proposal makes a number assumptions
regarding number of individual households
that will participate, terms on the loan and
loan amount, default rate, contribution to
guarantee fund, cost of insurance, etc. These
are shown in Table 4.2.
29
Informal Settlements and Finance
in Dar es Salaam, Tanzania

Table 4.2: Major assumptions in the proposed Makangarawe pilot

project
Variable Value assumed Unit

No. of housing loans 1000 no

Term of loan 5 years

Average size of loan 20,000,000 TSHs

Default % per year of portfolio 3 %

Repayment of loan loss provision fund 60 %

Contribution to Guarantee fund (p.a) 5 %

Cost of Group life insurance( once off) 3.5 %

Cost of technical support 0 %

Cost of admin support 0 0%

Base bank rate 12 %

Bank credit premium 2 %

Bank add admin premium 1 %

Deposit rate 6 %

Short term insurance ( p.a) 0.3 %

Capital Adequacy 10 %

Reserving 10 %

Capital cost 22 %

Source: Martin, 2008

Affordability SACCO, Other NGOs, The Community,

The proposal results in an effective interest rate
of 23 per cent and a monthly all-in payment
of approximately TShs 60,000.
Potential Role Players
The project proposal contains a list of potential
stakeholders. These include the Africa Union
of Housing Finance/Cities Alliance, Ministry
of Lands, Housing and Human Settlements
Development, National Housing Corporation,
Housing Finance Forum, Housing Finance
Taskforce Team, Dar es Salaam City Council,
Temeke Municipal Council, Dunduliza, WAT-
Local SACCOs, the individuals, and banks.
Perceptions of Loans for
House Improvement in Manzese
Settlement
As explained in Chapter three, the government
has implemented the Residential Licenses
project in Manzese ward. One of the objectives
behind the project was to give legal status
to land owners in the existing unplanned
settlements by issuing Residential Licenses,
which were in turn meant to form the collateral
for accessing loans.

30

In a study of 55 transformed houses in Manzese
ward, Ramadhani (2007) found that 14
involved the demolition of an existing building
and the construction of a new structure, while
the remaining 41 involved extensions and
alterations. And most of the extensions were
carried out in-front of the buildings facing the
roads so that the rooms could be rented out for
commercial activities. Furthermore, although
23 (42 per cent) of the property owners had
acquired their residential licenses, none used
them to obtain a loan for the transformation
activity. One of the respondents narrated why
he did not look for a loan:
“I depend very much from this building to
meet my daily needs. If I borrow the money
from the banks by using my house as collateral,
whilst I do not earn sufficient to amortise such
loans, I cannot afford. And if, I fail to repay,
the bank can foreclose my house. Then, where
am I going to stay with my family? In addition,
I don’t need large loans from bank, rather I
require small loans from SACCOs, UPATU18,
or PRIDE to build an extra room or improve
the existing one for renting out and doing my
small business” (Ramadhani, 2007; quoting a
respondent).
18 This is an informal local rotating savings and credit system
Housing Microfinance in Tanzania
Similar observations were made by Sekijage
(2006) in the same settlement. She interviewed
40 property owners and of these, 6 were willing
to use their residential licenses as collateral in
order to obtain a loan; 22 did not wish to
borrow because they feared they might lose
their properties; and 12 were undecided. One
Omari who did not wish to borrow said:
“I have seven relatives who depend on this
shelter, I cannot go to borrow money from
bank because I fear to lose this property, the
only alternative which I normally use when
my business is not operating well is borrowing
from PRIDE because they do not demand
houses” (Sekijage, 2006; quoting Omari).
It can be seen from the above discussion
that property owners in Hanna Nassif and
Manzese hold mixed perceptions on taking
loans for house improvement. But as explained
earlier, these findings are still preliminary and
involve very small samples of respondents.
There is a need therefore to carry out research
on the perceptions of property owners in
informal settlements regarding the usefulness
of residential licenses and/or title deeds for
accessing shelter microfinance loans.
31

Chapter 5
Informal Shelter Microfinance in Hanna
Nassif
Introduction
This chapter draws most of its data from a
PhD dissertation carried by the author in 2003
titled “Housing transformations and Urban
Livelihoods in Informal Settlements: the case
of Dar es Salaam, Tanzania”. The original
research covered two informal settlements of
Keko Mwanga and Hanna Nassif and had
five research questions. This chapter, however,
focuses on two research questions carried out
in Hanna Nassif:
Who are the transformers? How do they
transform their housing?
To better understand the context of the original
research and therefore the significance of the
findings of the research to the current topic of
shelter microfinance, it is important first and
foremost to define some of the key concepts,
particularly, urban livelihoods and housing
transformations. It is equally important to
describe the characteristic features of the
Swahili house, the house type built by many
low and middle income house owners in urban
settlements in Dar es Salaam.
Urban Livelihoods
One of the most progressive approaches to
understanding urban poverty is to focus on
Informal Shelter Microfinance
in Hanna Nassif
what poor households ‘have’, rather than
on what they ‘lack’ or ‘do not have’. This is
basically the essence of the livelihood approach.
Within the livelihood approach, poor
households command a series of important
assets, tangible and intangible. Depending on
their ability to manage their asset portfolios;
and the local economic, social and political
contexts in which they live, including the
regulatory environment, poor households
can move out of poverty. The most common
assets are physical, human, social, financial
and natural. And according to Moser (1998),
house ownership is by far the most important
productive asset of the urban poor.
These are briefly explained in Table 5.1.
Housing Transformation
Most of the houses we find in informal
settlements are a product of a long and complex
process of extensions and alterations (Sheuya,
2004; Stein and Castillo, 2005; Kombe and
Kreibich, 2006). Tipple (1991) defines housing
transformation as ‘an alteration or extension
involving construction activity and using
materials and technology in use in the locality’.
Studies on housing transformation have been
extensively carried out in government-built
houses in formally planned residential areas
33
Informal Settlements and Finance
in Dar es Salaam, Tanzania
in order to inform policy makers that such
activities do not constitute ‘building slums’
(Tipple, 1999).
In developing countries, government-
built houses form only a small fraction of
the housing market for urban low-income
earners. The majority of the people live in
slums (UNCHS, cited in Kombe, 2000). In
Table 5.1: Households’ major assets
Type of asset
Physical capital
Human capital
Social capital
Financial capital
Natural capital
Source: Own construct based on Rakodi and Lloyd- Jones, 2002.
Swahili House
The majority of the houses in Hanna Nassif
are single storey Swahili type. In addition,
studies have shown that the form and spatial
organisation of the Swahili house greatly
contributes to housing transformation. Spatially,
the urban Swahili house comprises of the main
building and the outbuildings (Figure 4). The
house is defined by having a central corridor
leading from a veranda facing the street, to a
backyard with outbuildings and to rooms on
each side of the corridor (Vestbro, 1975).
34
addition, the main housing delivery system is
through housing transformations, which are
not subjected to official development control.
Since housing is a major household asset, and
if well managed can assist households to move
out of poverty, little is known of the ways
housing transformations is taking place, who
is doing what and why.
Explanation
Includes housing, water, energy, and transport. For
poor urban households the most important is often
housing. Physical capital also includes production
equipments that enable people to pursue their
livelihoods.
Identified as the most important asset of poor people.
It depends on the number of people available to
work; their health status; and skills and education
they possess.
Reciprocity within communities and between
households based on trusts deriving from social ties.
Such as savings, remittances, access to credit and
pension.
Includes land, water and other common pool
environmental resources. Natural capital is said to be
less significant in urban areas except where urban
agriculture is practised.
Regarding flexibility, the Swahili house can
take up new rooms, which are usually added to
the main house or to the outer buildings. This
particular characteristic of the Swahili house
greatly contributes to housing transformations.
In Dar es Salaam, for instance, the average
number of rooms is six, but very often more
rooms are added in the backyard so that a
house can have as many as 12 rooms. Usually,
the rooms in the main building are used for
residential purposes while those at the back
serve as a kitchen, store, toilet and showers.
 Informal Shelter Microfinance
in Hanna Nassif

figure 4: Urban Swahili House

BA

35
Informal Settlements and Finance
in Dar es Salaam, Tanzania
Besides the above-mentioned spatial qualities,
the Swahili house is also said to be technically
adaptable because it can absorb innovations in
building materials and construction techniques.
Due to this particular quality of the house,
Wells et al. (1998) distinguish three types of the
Swahili house: traditional, semi-modern and
modern. And although the layout plan of all the
three types remains the same, the construction
materials used in each type change.
In the traditional Swahili house, the walls
(which are about 100-150 mm thick) are
constructed by using poles which are plastered
with mud. The roofing cover is usually woven
palm leaves popularly known as makuti. In
figure 5: The semi-modern Swahili house
The modern Swahili type in Dar es Salaam is
usually built with a proper foundation made
of concrete or other durable material such as
stone, its walls are made of sand cement blocks
36
urban areas, flattened tins or oil drums are also
commonly used.
The traditional house type is, in many cases,
not durable because of the nature of the
construction materials used. It therefore
requires constant maintenance which is
usually achieved by constructing a coral stone
and cement short wall around the perimeter
of the house to strengthen the foundation,
plastering the walls with sand cement mortar,
covering the floor with sand cement screed and
by removing the makuti and replacing them
with iron sheets. When the house is upgraded
in the manner described above, it is known as
semi-modern.
and the roofing cover is iron sheets. In the
recent years, roofing tiles have also become a
common roofing material.
 Informal Shelter Microfinance
in Hanna Nassif

Research Methodology one of the oldest in the city and has a relatively
high residential density of 400 persons per
The empirical study was carried out in Hanna hectare which is caused by, among other
Nassif (Figure 6) in 2002. The settlement is things, continuous housing transformations.

figure 6: Hanna Nassif showing transformed houses along primary

and secondary roads in Hanna Nassif

Source: Field work, May-August 2002

37
Informal Settlements and Finance
in Dar es Salaam, Tanzania
The key data collection methods used were
observations; measurements and sketching of
house layout plans showing situations before
and after the transformations; taking of still
pictures; in-depth interviews; and focus group
discussions. The interviews were held with 17
purposely selected, information rich household
heads. The process of identifying information
rich cases involved four steps:
1. walking along the primary and secondary
roads in the settlement to identify and locate
transformed as well as non-transformed
houses. The choice of studying houses
located along primary and secondary roads
was made in order to identify cases that are
“most likely” or “least likely” to confirm
or falsify the hypothesis put forward
(Flyvbjerg, 2001);
2. carrying out a listing exercise involving
the transformed houses by documenting,
among other things, year when the house
was built (start-up phase), type and
number of transformations carried out;
basic infrastructure provided including
water;
3. categorizing the transformed houses into
most transformed, moderately transformed,
and least transformed, depending on the
field observations; and
4. selecting the 17 cases for in-depth interviews
from the three categories above.
Results
Based on the research questions, the findings
of the study are presented. We start with the
characteristics of the house transformers19,
followed by the house construction/
transformation phases Vs household assets
mobilized in each phase and finally the reasons
behind carrying out the transformations.
19 This terminology is used to mean the owner households or
individual property owners that transformed their houses. Each
transformer can be identified by the use of numbers 1 to 17.
38
Characteristics of House Transformers
In line with the livelihood concept, the
characteristics of the transformers are described
in terms of the assets they command. We
particularly focus on human, social and physical
assets. And as explained earlier, human capital
depends on, among other things, the number
of household members available to work; and
the skills and education they possess. In 2002
and based on this criterion, five out of the 17
cases had more than 10 members who could
be mobilized for work and therefore increase
household incomes.
In terms of education, 13 transformers had
attended primary and secondary education and
four had not received any formal education.
Seven out of the 13 had also acquired different
skills such as masonry, materials and hotel
management, driving, teaching etc. These
found employment in the government and
private sector organizations. The remaining
ten (including those who had no formal
training) were self employed in small and micro
enterprises including tailoring, manufacture
and sale of cooked food, local brew, petty
trading etc.
House Construction and Transformation
Process
The construction and transformation of the
houses is in phases and these can be divided
into the start-up and the transformation phase.
The start-up phase commences when the
household begins to build the core dwelling
unit and ends when th e unit has reached a level
that is considered habitable by the transformer
and he or she moves in. The transformation
phase starts after the household has moved in,
that is, at the end of the start-up phase. Unlike
the start-up phase, the transformation phase is
relatively lengthy and in most of the studied
cases, it took more than four construction
phases.
 Informal Shelter Microfinance
in Hanna Nassif

Start-up Phase • four built the second main house;

In the studied cases, 13 transformers started
by building the foundations of the main house
and a room which they immediately occupied.
The remaining four on the other hand built
outbuildings. Regarding construction
materials 11 out of the 17 transformers used
mud and pole for erecting the walls of their
houses in the start-up phase.
Transformation phase
In the first phase of the transformation phase,
that is, the second stage of the construction
process:
• five of the 13 transformers who had built
the foundation of the main house and a
room, made room extensions in the same
houses;
• t hree replaced the mud and pole walls with
sand cement blocks;
• a nd one built a room extension outside the
main house.
Regarding the four transformers who had
started by constructing outbuildings, one
made a room extension and three started
building the main house.
In the second and third phase of the
transformation process, all those who started
with the main house as well as the outbuilding
that had not yet replaced the wall construction
materials did so while others built room
extensions and carried out alterations. Those
that started with the main house continued
with making alterations and extensions (Figure
7).

figure 7: House Construction and Transformation Phases in Hanna

Nassif
Transformation phases
Start-up
phase 1st 2nd 3rd 4th 5th

Room Materials Materials Alteration Room

extensions (5) change/roof change/roof extensions

Main house Room Room Room

(4) extensions extensions extensions
Main house
(13 cases)
Materials Room Room Room
change (3) extensions extensions extensions

Room
extension Alteration Room Room
not in main extensions extensions
house (1)

Room
Out buiding extensions (1)
(4)

Main house Materials

change Alteration
(3)

39
Informal Settlements and Finance
in Dar es Salaam, Tanzania
What seems interesting is that irrespective
of whether they started with the main house
or the outbuilding, they all started small
and gradually extended when the financial
situation improved.
In addition some transformers started building
from the front part of the plot and continued
to extend by moving to the back of the plot
while others took the opposite path. This
demonstrates flexibility in deciding where to
start the construction, that is, from the front
or the rear side of the plot.
Assets Mobilized in the Construction
and Transformation Phases
The study shows that all five types of assets
were mobilised by the transformers. However,
a detailed analysis of the assets used during
the different phases of the construction and
transformation process shows that human,
financial, social capital and their combinations
were mostly used in the start-up phase. In the
transformation phase, physical, financial and
natural assets and their combinations were the
most important resources.
Assets mobilized in the start-up phase
Human and financial capital
Since all the transformers were employed in one
way or the other (self-employed, employed by
the government or private sector) as explained
earlier, they used part of their earnings to
build the houses in the start-up phase. In
this way, human capital, particularly in the
form of skills was first converted to financial
assets (savings from employment and self
employment) and later on changed to physical
capital (housing).
Social and financial capital
One of the transformers, Transformer no. 12
also used part of his inheritance (financial
capital) in the start-up phase, to build his
original house:
40
When our father died in 1977, we inherited
cattle. We shared the cattle among ourselves and
I sold my share [of the cattle]. I used part of the
earning to build this house.
In another case, transformer no. 5 was very
thankful to her father for buying her the plot
where she built her house. She narrated that
immediately after getting the plot, she started
to develop it.
The two examples show how financial capital
was derived from social relations, that is,
social capital. This observation shows that, in
situations like the ones described above, it is
difficult to draw a clear line between social and
financial capital.
Assets mobilized in the transformation
phases
Physical capital
In the later stages of the transformation phase,
findings show that 13 transformers used their
housing to generate income through renting
rooms for residential and commercial activities.
In addition, two of these supplemented their
earnings by selling water from water vending
kiosks built on their plots and jointly owned
by themselves and the local CBO, the Hanna
Nassif Community Development Association
(HNCDA). In the joint venture arrangement,
the individuals contributed the land on which
the water kiosks and reserve water tanks stand
and the local CBO provided the financial
resources. During in-depth interviews they
mentioned that part of the income generated
from renting their premises as well as from
water vending, was invested in housing
transformation.
Financial capital
Two transformers (identified as nos. 11 and
17), have had access to loans from a micro-
credit scheme that was being managed by the
local CBO. During the in-depth interviews,
they disclosed how they managed to divert
 Informal Shelter Microfinance
in Hanna Nassif

part of the loan money, which was meant
for enterprise development, to other uses.
Transformer no. 11, for instance, used part of
the loan to pay school fees for her orphaned
granddaughter. Transformer no. 17 on the
other hand, built a new toilet. In these
transactions, the first converted financial to
human capital and the second financial to
physical capital.
It can be seen that besides using income earned
from selling local brew to build her house in
the start-up phase, the transformer signed
agreements with two micro-entrepreneurs; she
sold part of her plot; and she has allowed her
son to nest in her plot. What is also significant
is that the son has not only built a house where
he lives, he also earns part of his living from
renting three rooms.

Natural and physical capital Self-financing Mechanisms

Seven out of the 17 transformers have used
part of their plots as assets to transform their
housing. This practice has followed two
approaches: (1) to subdivide the plot and sell a
portion to a buyer and (2) to lease part of the
plot to a micro-entrepreneur who then builds
a room where he or she conducts business for
a number of years without paying rent because
the amount invested in building the room is
considered as pre-paid rent. Transformer no.
2 whose narrative is summarised in Box 2
highlights these dynamics.
From the findings above, we note that in the
late stages of the transformation phase, the
house and the plot become major resources
for housing transformation. At this stage, the
housing (house and plot) has developed its
own internal mechanisms whereby the owner
households do not need to marshal resources
from other household assets when the need
to transform the house arises because there
were micro-entrepreneurs who were ready
to invest in the transformation process. At
this particular point, house transformation
becomes a self-financing process.

box 2: Mobilizing human, financial, social and natural assets

Start-up (1) In 1970’s she constructed a two-roomed mud and pole house. The
source of income was profit obtained from selling local brew.
Transformation (2) In 1980 her son constructed a five-room house made from sand-cement
blocks. The rooms were built one at a time. Even at the time of the study,
the foundation of one of the rooms was still incomplete. His source of
income was petty trading including the sale of fried chips.
Transformation (3) The lady built two other rooms made of sand cement blocks. The money
for putting up the two rooms came from selling local brew.
Transformation (4) A micro-entrepreneur constructed a food-vending kiosk made from sand-
cement blocks. The kiosk is located in front of the house built by her son.
The agreement between the micro-entrepreneur and the transformer
was such that the latter will not demand rent till such a time that the
amount invested in building the room is repaid in the form of pre-paid
rent.
Transformation (5) She sold part of the plot to a close relative who constructed a two-room
house and a toilet.
Transformation (6) Another micro-entrepreneur agreed to build a room in order to sell meat.
He signed agreement with the transformer similar to the first micro-
entrepreneur.

Source: Interview with transformer 2

41
Informal Settlements and Finance
in Dar es Salaam, Tanzania

The studied cases in Hanna Nassif did not
show whether tenants are also involved in
financing room extensions or alterations. This
was found in Keko Mwanga, another old
informal settlement also located close to the
city centre. As shown in Box 3, a tenant enters
into agreement with the transformer and carries
out the transformations. Whatever is invested
is counted as pre-paid rent and after some
years, the room that has been built or altered
in this way reverts to the owner household.
Arising from the discussion above, self
financing mechanisms seem to take place
in consolidated settlements located close to
the city centre and where demand for rental
residential and commercial accommodation
is high (Sheuya, 2007). And although self
financing mechanisms provide new lenses for
exploring new directions in informal shelter
microfinance, the complexities they bring
in terms of land tenure and tenure security
should not be overlooked.

box 3: Tenants transforming houses

Start-up (1) In 1970’s she constructed a two-roomed mud and pole house. The
source of income was profit obtained from selling local brew.
Transformation (2) In 1980 her son constructed a five-room house made from sand-cement
blocks. The rooms were built one at a time. Even at the time of the study,
the foundation of one of the rooms was still incomplete. His source of
income was petty trading including the sale of fried chips.
Transformation (3) The lady built two other rooms made of sand cement blocks. The money
for putting up the two rooms came from selling local brew.
Transformation (4) A micro-entrepreneur constructed a food-vending kiosk made from
sand-cement blocks. The kiosk is located in front of the house built
by her son. The agreement between the micro-entrepreneur and the
transformer was such that the latter will not demand rent till such a time
that the amount invested in building the room is repaid in the form of
pre-paid rent.
Transformation (5) She sold part of the plot to a close relative who constructed a two-room
house and a toilet.
Transformation (6) Another micro-entrepreneur agreed to build a room in order to sell meat.
He signed agreement with the transformer similar to the first micro-
entrepreneur.

Source: Interview with the heir of transformer 11 in Keko Mwanga

42

Chapter 6
Conclusion and Recommendations
In order to be able to draw conclusions and
recommendations, we separate the attempts of
settlement upgrading financing from those of
the financing for housing improvement.
Financing of Settlement
Upgrading
Tanzania, like most of the developing
countries, has and continues, to be faced with
high urbanization rates amidst slow economic
growth rates. Although the economy is now
picking up, the country is still unable to meet
the demands for housing for the majority of
its residents, particularly in the urban areas.
Most of the housing provision is carried out
by petty landlords. While this is positive in
many aspects, the efforts of the landlords
are frustrated by local governments’ failure
to produce sufficient and serviced land for
housing. As a result, more than 70 per cent of
the houses built in urban areas are located in
unplanned settlements that lack most of the
basic infrastructure and social services.
As early as the 1970s, the government
recognized unplanned settlements as
important urban residential areas: they needed
to be upgraded and not to be demolished.
And observing its inability to meet the urban
housing demand, the government put in place
a number of policies and enacted several laws
Conclusion and Recommendations
to facilitate the upgrading of the unplanned
settlements as well as the provision of surveyed
and serviced plots. Notable are the National
Housing policy of 1981; the National Human
Settlements Development Policy of 2000; the
Housing Development Policy of 2008 (which
is in draft form); and the Land Act of 1999.
With financial and technical support from
the government as well as the World Bank,
Manzese, Mtoni and Tandika unplanned
settlements in Dar es Salaam, as well as
unplanned settlements in four upcountry
towns, were upgraded whereby the most basic
infrastructure (roads, storm water drainage,
water supply, etc) and basic social services
(primary schools, health centres, markets, etc)
were provided. Similarly, with support from
UNDP and the Ford Foundation, Hanna
Nassif was upgraded by providing the basic
infrastructure through innovative participatory
approaches. One cross-cutting challenge that
these pioneer upgrading projects faced was
poor cost recovery.
At the time of writing this report, regularization,
which is contained in the Land Act of 1999,
is the key instrument for improving the living
and working conditions of people living in
informal settlements. For example, through
regularization, property owners in unplanned
settlements can acquire short term renewable
residential licenses which they can use to access
43
Informal Settlements and Finance
in Dar es Salaam, Tanzania
loans for housing improvement from financial
institutions.
Through the use of local funds and without
support from external donors, the government
has regularized a number of informal
settlements in Dar es Salaam and some
upcountry towns. Property owners in these
settlements can acquire short term residential
licenses. In addition, WAT Human Trust
in Hanna Nassif, has gone a step further
by facilitating property owners to acquire
long term title deeds. In both cases, they are
required to pay for the costs of preparing the
land ownership documents. So far, few of the
property owners in the regularized settlements
have come forward to take their residential
licenses. Likewise, only a handful of people
have taken up their title deeds in Hanna Nassif.
The slow speed in taking up the licences and
title deeds seem to suggest that even in these
new attempts of providing tenure security cost
recovery is still a problem.
While regularized settlements are still faced
with cost recovery issues, the story is totally
different in the Surveyed and Serviced Plots
Project which was also funded entirely from
local resources. Cost recovery is very high and
the approach is replicable.
Financing of Housing
Improvement
Tanzania has a number of local as well as
foreign formal financial and non- banking
financial institutions. Although this is the case,
except the Azania Bancorp Ltd, there is no
other banking institution that is specializing
in housing microfinance. WAT Human Trust,
a local NGO, recently developed a shelter
microfinance product that is being pioneered
in Hanna Nassif. The most interesting findings
from the short experience in Hanna Nassif are:
• Th
e total loan amount was not adequate
to complete the renovations -they varied
from 24 per cent to 61 per cent of the
44
required amount. This means that owner
households had to top up the amount
from other sources.
• Tenants lived in the houses and monthly
room rentals were adequate to repay the
loan; and
• A
ll borrowers admitted that the loan
was an important catalyst for the house
improvement.
Thus, besides Azania Bancorp Ltd. and
WAT Human Settlement Trust, it is fair to
conclude that the majority of property owners
in unplanned settlements have not accessed
shelter microfinance loans from formal
financial institutions and they continue to
build their housing through informal financing
mechanisms.
According to Kironde (2007), the existing
microfinance institutions cater for only 5 per
cent of the demand, meaning that the demand
is high. A study carried out by Martin, (2008)
on behalf of the Cities Alliance and the Africa
Union of Housing Finance, has further shown
that microfinance lenders often discover that
loans meant for enterprise development are
constantly being diverted to finance housing
improvement.
In view of this, and observing that shelter
microfinance in Tanzania is a relatively new
phenomenon, Martin, (2008) developed a
comprehensive proposal for a pilot project in
one of the informal settlements, Makangarawe,
in the Temeke municipality. In developing the
pilot proposal, the needs of the residents were
carefully studied and simultaneously tailored
with banks requirements to mitigate risks. In
order to know what works and what does not
work, there is a need to follow up closely the
future development of the pilot proposal.
In another development, a study carried out
by the author in Hanna Nassif has, among
other things, revealed that the most common
informal shelter microfinance system is
based on the type of assets that households
command. These include human, social,

physical financial and natural; and their
combinations. Furthermore, the study shows
that the households build incrementally
and in the initial stages they mostly rely on
a combination of human, financial and
social assets. In the next stages of housing
improvements, the households depend on
a combination of physical, financial and
natural assets. After the second stage, nearly
all the improvements that follow are funded
by self-financing mechanisms. At this point,
the housing has developed its own internal
mechanisms whereby the owner households
do not need to gather together resources
from other household assets when the need
to transform the house arises: there are micro-
entrepreneurs who are ready to invest in the
housing improvement process. Self- financing
mechanisms seem to take place in consolidated
settlements located close to the city centre
and where demand for rental residential and
commercial accommodation is high.
Recommendations
At the settlement level:
1. Projects that aim at improving the living
and working conditions in unplanned
settlements, should not be seen in
isolation from those aimed at providing
new surveyed and serviced plots. The
success story of the 20,000 Plots Project
in terms of cost recovery seem to suggest
that, a careful and comprehensive design
of settlement upgrading which looks at
the whole city as one entity, is likely to
offer possibilities of cross-subsidization.
2. The regularization projects which resulted
in the issuance of short term residential
licences did not go one step further towards
the demarcation of plot boundaries
(cadastral surveys). Those which included
plot boundary demarcation ended in
producing long term title deeds. These two
approaches form part of the continuum
of tenure security measures. They permit
Conclusion and Recommendations
flexibility in tenure holding and should be
allowed to co-exist.
3. The proposed pilot project on appropriate
housing finance products formulated by
Martin (2008) in Makangarawe, Temeke
Municipality should be followed through
to see if it takes off. And if it does, the
project should be closely monitored to
explore what works and what does not
work.
At the household level
1. Increasingly, experience from other
developing counties shows that, besides
offering loans for micro enterprise
development, microfinance institutions
are entering into shelter microfinance
sub-market. Microfinance institutions
in Tanzania are encouraged to study the
existing situations in urban areas to explore
ways to offer the shelter microfinance
product.
2. Household assets will, for a long time to
come, be the major source of informal
shelter microfinance among low-income
urban dwellers. The finding that loans
offered by WAT Human Settlements
Trust are not enough to cover the costs
of house improvement yet they have an
important triggering effect in housing
improvement should be further explored.
In essence, the finding shows the
importance of combining formal and
informal shelter microfinance systems in
housing development.
3. The government, private sector, NGOs
and other key stakeholders need to explore
alternative ways to enhance household
assets.
Concluding Remarks
The assets households command (human,
physical, social, financial and natural) and
their combinations constitute a major source
45
Informal Settlements and Finance
in Dar es Salaam, Tanzania

of shelter microfinance in urban informal
settlements. Experiences from Hanna Nassif
seem to suggest that shelter microfinance
through the use of household assets can be
catalyzed by small loans from formal shelter
microfinance organisations. The net effect
of the two financing systems, formal and
informal, is likely to be improved housing
conditions in unplanned settlements. There
is a great need to further explore the linkages
that exist between formal and informal shelter
microfinance systems.

Appendix 1: List of registered commercial Banks20 (2008)

Name of bank Branch Network

Standard Chartered Bank (T) Ltd 7

Stanbic Bank (T) Ltd 5

Citibank(T) Ltd 1

FBME Bank(T) Ltd 3

BOA BANK(T) Ltd 3

Diamond Trust Bank(T) Ltd 2

Exim Bank(T) Ltd 2

National Bank of Commerce(T) Ltd 40

National Microfinance Bank(T) Ltd 108

CRDB Bank(T) Ltd 22

The Peoples Bank of Zanzibar(T) Ltd 3

Akiba Commercial Bank(T) Ltd 3

Kenya Commercial Bank(T) Ltd 2

International Commercial Bank(T) Ltd 2

Habib African Bank Ltd 1

Barclays Bank (T) Ltd 2

African Banking Corporation (T) Ltd 1

Commercial Bank of Africa 1

CF Union Bank Ltd 1

Savings and Finance Commercial Bank Ltd 2

Azania Bancorp 1

Bank of Baroda (T)Ltd 1

Access Bank Tanzania Ltd 1

Bank of India Tanzania Ltd 1

Source: Bank of Tanzania, 2008.

20 A bank is an institution authorized to receive money on current account subject to withdrawal by cheque.

46
 Conclusion and Recommendations

Appendix 2: Financial, Regional Unit Financial Institutions and Regional

Unit Banks
Name of Financial Institution Branch Network

Tanzania Investment Bank 1

Tanzania Postal Bank 4

Twiga Bancorp Ltd 4

Regional Unit Financial Institutions

Mufindi Community Bank Ltd 1

Mwanga Rural Community Bank Ltd 1

Regional Unit Banks

Kilimanjaro Co-operative Bank Ltd 1

Dar es salaam Community Bank 2

Mbinga Community Bank 1

Kagera Famers Co-operative Bank Ltd 1

Uchumi Commercial Bank 1

Source: Bank of Tanzania, 2008.

47
Informal Settlements and Finance
in Dar es Salaam, Tanzania

Appendix 3: Regional Distribution of Microfinance Institutions in

Tanzania

Regions Banks NGOs FSAs Government SACCOs SACAs CBOs TOTAL

Schemes

Tanzania Mainland
Arusha - 8 - - 68 1 - 77

Coastal - - - 11 38 - 1 50

Dar es Salaam 4 5 - 5 175 - - 188

Dodoma 4 6 88 1 1 100

Iringa 1 2 - 100 - - 103

Kagera 1 7 - 10 97 1 116

Kigoma - 2 - 8 23 - 1 34

Kilimanjaro 1 - - - 92 1 - 94

Lindi - - - - 22 - - 22

Manyara - - - - 50 - - 50

Mara - 1 - 10 99 - 1 111

Mbeya - 1 - - 160 33 2 196

Morogoro - 1 - 11 82 - - 94

Mtwara - 1 - - 41 1 - 43

Mwanza - 4 1 14 207 - 1 227

Rukwa - 3 - - 22 10 - 35

Ruvuma 1 - - - 42 1 44

Shinyanga - 4 - 10 45 - 29 88

Singida - 2 - 7 46 - 6 61

Tabora - 6 - 13 17 - 2 38

Tanga - 2 - - 39 - - 41

Sub-Total 8 53 1 105 1,553 48 45 1813

Regions in Zanzíbar

North Pemba - - - - 5 - - 5

South Pemba - - - - 17 - - 17

North Unguja - - - - 6 - - 6

South Unguja - - - - 24 - - 24

Urban west - 4 - - 30 - - 34

Sub-Total 0 4 0 0 82 0 0 86

Grand Total 8 57 1 105 1,635 48 45 1,899

Source: Bank of Tanzania, 2005.

48
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51
 The Human Settlements Financing Tools and Best Practices series

The report consists of six chapters. Chapter one examines urbanization rates in Tanzania
and its impacts on housing provision. Chapter two examines the impacts of urbanization
in the specific context of Dar es Salaam. Chapter three reviews the different settlement
upgrading projects carried out by the government, NGOs and other stakeholders that
were aimed at improving the lives and working conditions of the majority of people
living in informal settlements. Chapter four analyses the housing finance situations
in Tanzania. Chapter five looks specifically at informal shelter microfinance and self-
financing mechanisms. Chapter six provides the conclusions and recommendations. The
recommendations focus on two aspects (1) financing of settlement upgrading projects
and (2) financing of shelter improvement.

HS/1220/09E
ISBN: 978-92-1-132186-9 (Volume)
ISBN: 978-92-1-132027-5 (Series)

United Nations Human Settlements Programme

P.O. Box 30030, GPO Nairobi, 00100, Kenya
Telephone: +254 20 762 3120
Fax: +254 20 762 3477
infohabitat@unhabitat.org
www.unhabitat.org